Business & Real Estate

CalPERS adopts $459 million pension rate hike

CalPERS approved nearly a half-billion dollars in pension contribution rate increases Wednesday.

The big pension fund approved a $459 million rate increase for the state, bringing the state’s contribution to around $4.3 billion a year. The fund also approved a $55 million increase for school districts, to $1.12 billion. The state’s higher rates will kick in with the start of the new fiscal year in July, while the schools’ increase will begin in 2016.

The increases are in line with what the California Public Employees’ Retirement System predicted in February, when it approved a broad set of new financial assumptions. The assumptions are mainly based on recent studies showing longer life expectancies for retirees, prompting additional funding.

More is coming; the rate hikes approved Wednesday marked phase one of a series of increases planned for the next few years.

All told, the state’s annual contribution to CalPERS is expected to rise by about $1.2 billion when the new assumptions are fully phased in, to a total of about $5 billion.

“We have had to make some difficult decisions in recent months in order to strengthen the future of the fund,” said CalPERS board President Rob Feckner in a prepared statement. “The changes will ensure CalPERS is on (an) even stronger footing for generations to come.”

Over the long term, CalPERS’ pension program for the state is 66 percent funded; most experts say a fund should be at least 80 percent funded. Despite the shortfall, CalPERS has plenty of available funds to handle its liabilities for the foreseeable future. CalPERS’ plan for school districts is 80 percent funded.

CalPERS’ staff had originally proposed delaying the increase in contribution rates until July 2016 and phasing them in more slowly, but Gov. Jerry Brown called that “unacceptable.” The board, which had final say, agreed to speed up the rate hike for the state but not the school districts.

Spokeswoman Amy Morgan said CalPERS will set new rates for local government agencies this fall. As with the school districts, those higher rates will begin taking effect in 2016.

The school district plans cover employees who aren’t teachers. The teachers’ pension system, CalSTRS, is wrestling with its own financial shortfall but needs the Legislature’s permission to implement higher rates.

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