What is CalPERS? We explain in one minute
California state government’s bill for public employee pensions is set to rise by $676 million.
CalPERS on Tuesday advanced a scheduled increase in employer contribution rates, bringing the state’s total bill for the 2019-2020 budget year to about $7 billion. That money comes out of taxes and fees collected by the state and is part of the compensation promised to state workers.
The state’s pension bill will go up July 1 based on CalPERS’ review of the fiscal year ending June 30. Actuaries provided estimates ahead of Tuesday’s meeting. Most local governments’ pension payments also will go up next year.
The biggest factor in the state’s rising obligation is a $340 million increase in its share of the fund’s outstanding debt, or unfunded liability. The $362 billion pension fund, which currently has about 70 percent of what it would need to pay all its future obligations, is in the process of paying down the liability over 30 years.
The estimates approved Tuesday by a CalPERS Board of Administration committee didn’t include a $3 billion one-time payment toward the unfunded liability that Gov. Gavin Newsom requested in his budget. The Legislature has yet to approve the payment, and CalPERS officials told the board they couldn’t estimate with certainty the payment’s final impact until more details are known.
The state in last year’s budget estimated it has $287 billion in unfunded retiree liabilities for pensions and health care. Newsom’s early payment to CalPERS would save the state about $7 billion over time by paying down debt ahead of schedule, his office estimated when it released his plan.
Another $229 million of the increase stems from CalPERS’ adjustments to its anticipated return on investment rate — to 7 percent from 7.25 percent last year — and from a downward adjustment to inflation assumptions. Those changes require public agencies to kick in more money now to make sure their employees’ pensions are funded in the future.
Higher-than-anticipated payroll increases will notch the state’s obligation up another $95 million, according to CalPERS.
CalPERS officials reported that the pension fund is seeing savings from a law Gov. Jerry Brown signed in 2012 that reduced benefits for new employees and required them to pay more money toward their retirement plans. That law is projected to save CalPERS $43 million next year.
The state also saw savings from a better-than-expected return rate for the fiscal year that ended June 30, 2018. The fund returned 8.6 percent on its investments, higher than the target of 7.25 percent for the year.
For the year ending June 30, 2019, the fund is not likely to meet its 7 percent target, Chief Investment Officer Ben Meng has said. The fund had returned 1.5 percent for the fiscal year as of the end of February, following the economic downturn at the end of 2018. The final rate won’t be known until the end of the budget year.
Newsom’s budget proposal projects $209 billion in total state spending next year. CalPERS is not state government’s only retirement bill. It also makes payments to the California State Teachers’ Retirement System and the University of California Retirement Plan.