August 17, 2011
External Affairs Branch
Robert Udall Glazier, Deputy Executive Officer
Brad Pacheco, Chief, Office of Public Affairs
Contact: Edward Fong, Information Officer
CalPERS Acts to Ensure Benefits of Terminated Agency Members
SACRAMENTO, CA – The California Public Employees' Retirement System (CalPERS) Board of Administration today approved a plan to protect the retirement benefits of workers who belong to a CalPERS pension plan that's been terminated by a public agency employer.
For various reasons, public agencies occasionally terminate their pension plan or CalPERS will terminate a plan. When this happens, the terminated agency's plan assets and liabilities are transferred to the CalPERS Terminated Agency Pool if the employer wants to continue with CalPERS as the plan administrator. Funds from the pool are used to pay benefits when workers retire.
As of June 30, 2009, there were 118 agencies in the terminated agency pool with 4,700 members. The pool is currently very well funded with 240 percent of the assets required to pay benefits -- $144 million in assets and $60 million in liabilities. However, there is concern that the funded status of the pool would deteriorate dramatically in the future if a large under-funded agency terminated its plan and left its assets and benefit obligations with CalPERS.
Employers do not make contributions to the pool after their pension plan is terminated. The only source of future pool income is from investment earnings. The plan approved today includes three key elements to reduce the risk of underfunding of the terminated agency pool:
- Terminated agency pool assets will remain a part of the Public Employees' Retirement Fund (PERF) but will be invested more conservatively than in the much larger PERF, more closely reflecting the characteristics of future expected benefit payments from the pool. The new asset allocation policy for the pool will be determined by the CalPERS investment and actuarial staff, subject to approval by the CalPERS Board.
- CalPERS will develop a new regulation to ensure investment earnings of the pool are allocated appropriately.
- The discount rate of the pool is expected to be significantly lower than the rate for the regular CalPERS pension fund because of lower projected investment returns from the more conservative asset allocation. The discount rate for the regular CalPERS pension fund will not change; it will remain at 7.75 percent.
"These changes will help ensure the future financial security of our members," said CalPERS Board President Rob Feckner. "They also enhance accountability and ensure the long-term sustainability of the terminated agency pool."
A more conservative investment asset allocation and lower discount rate would greatly reduce the risk of assets ever being less than liabilities. However, the changes will also require employers who terminate their plans in the future to deposit more assets into the pool to reflect updated valuations based on the asset allocation and discount rate changes.
"As fiduciaries, we have a responsibility to act in the best interest of our members," said George Diehr, Chair of the CalPERS Board Benefits and Program Administration Committee. "The time to act is now when the pool is in good shape, rather than waiting and risking a future deterioration of the pool's funded status."
CalPERS, with assets of about $220 billion, is the largest public pension fund in the U.S. The retirement system administers pension benefits for 1.6 million active and retired California state, public school, and local public agency employees and their families, and health benefits for 1.3 million members, on behalf of 3,000 California public employers. The average CalPERS pension is $2,220 per month. More information is available at www.calpers.ca.gov.
Additional ResourcesFAQs - Discount Rate for Terminated Agencies