State and local governments would pay billions of dollars more to the California Public Employees' Retirement System over the next few years under new policies approved by a key CalPERS committee Tuesday.
The policy changes would require the nation's biggest public pension fund to spread its gains and losses over five years instead of its current 15-year "smoothing" period, and to figure its obligations on a fixed 30-year payoff schedule. For several years, CalPERS has rolled those liabilities forward instead of setting a date to pay them off.
The policies go today to CalPERS' full board of administration, which will likely approve them.
The new accounting methods would force CalPERS, which has $87 billion in unfunded liabilities, to send bigger bills to the 2,200 state, local governments and school districts in the system to pay down those obligations.
For example, the state and schools would see their payments increase from a combined $5 billion or so in fiscal 2015-16, when the smoothing policy takes effect, to more than $7.4 billion five years later.
Even without the accounting change, agencies would face higher rates under the current policy.
Many agencies still reeling from tax losses during the recession are already struggling to pay the bills. Stockton and San Bernardino are embroiled in bankruptcy lawsuits that spotlight their pension obligations.
But Richard Gillihan, speaking for Gov. Jerry Brown's Department of Finance, said the administration supports the policy change.
"We believe it's a matter of pay now or pay more later," Gillihan told the fund's Pension and Health Benefits Committee on Tuesday. "We believe pay now makes better fiscal sense."
Although its assets have returned to their pre-recession high-water mark (not accounting for inflation) of about $260 billion, CalPERS' obligations to pensioners have grown, too.
As of mid-2011, the fund was still short 30 cents for every dollar it is obligated to pay pensioners long-term. A recent Cal-PERS actuarial report concluded that pension costs will continue to grow under the current accounting methods.
For years, 80 percent funding has been considered the threshold for healthy pension funds. Some experts now are encouraging funds to aim for 100 percent funding. A recent CalPERS report concluded that CalPERS' major pension plans have a 50 percent or greater chance of falling below 50 percent funding status at some point in the next 30 years.
Alan Milligan, the fund's chief actuary, said Tuesday the results of the more conservative accounting policies "will be improved funding levels over time and a reduction in the overall funding level risk."