April 17, 2013
External Affairs Branch
Robert Udall Glazier, Deputy Executive Officer
Brad Pacheco, Chief, Office of Public Affairs
Contact: Amy Norris, Information Officer
CalPERS Board Approves New Actuarial Policies
New methods aimed at fully funding system
SACRAMENTO, CA – The California Public Employees' Retirement System (CalPERS) Board of Administration today approved new actuarial policies that are aimed at returning the System to fully-funded status within 30 years.
"This was one of the most difficult, yet most important decisions we have had to make," said Rob Feckner, President of the CalPERS Board. "Moving our plans more swiftly toward full funding will ensure a sustainable pension system for our members, employers and ultimately taxpayers over the long-term."
The new policies include a rate-smoothing method with a 30-year fixed amortization period for gains and losses. The amortization would have a five-year ramp-up of rates at the start and a five-year ramp-down at the end.
At the Board's request, actuarial staff examined various alternatives to the adopted method to mitigate some impact of rate increases in the first several years of implementation. It was determined that although alternatives did provide lower rates up front, rates would be higher over time. However, the Board did delay the implementation of the new policy until 2015-16 for the State, schools and all public agencies.
In addition to closing the funding gap in 30 years, the new method will also help avoid large increases in employer contribution rates in extreme years, while maintaining a reasonable level of change in normal years.
"While this was a tough decision, it was the right thing to do for CalPERS," said Priya Mathur, Pension & Health Benefits Committee Chair. "Though rates will initially be higher in the short term, we can now provide better transparency and greater rate predictability, which our employers need for budgeting purposes."
Based on investment return simulations performed for the next 30 years, increasing contributions more rapidly in the short term is expected to result in almost a 25 percent improvement in funded status over a 30-year-period.
CalPERS is the largest public pension fund in the U.S. with approximately $256 billion in assets. The retirement system administers retirement benefits for more than 1.6 million current and retired California State, public school and local public agency employees and their families on behalf of more than 3,000 public employers in the state, and health benefits for 1.3 million enrollees. For more information about CalPERS, visit www.calpers.ca.gov.