The California Public Employees’ Retirement System has taken a beating in the markets this year, which means participating governments could be on the hook for increased contributions.
The good news for governments that participate in the nation’s largest public employee pension system is that it will take some time before they get a bill for increased pension contributions, assuming the system’s investment performance doesn’t turn around.
“As of Oct. 10, 2008, the CalPERS fund had lost more than 20% of its value since July 1, 2008,” according to a staff report prepared for CalPERS’ benefits and administration committee this week. “Such decline will no doubt have an impact on the funded status of plans at CalPERS and on the contribution rates that employers will have to pay in the future.”
The impact will be cushioned by the system’s policy of smoothing out investment gains and losses over 15 years, the committee’s chairman, Kurato Shimada, said in a statement.
“When the dust settles, we will apply the impacts of losses or gains over a 15-year period,” he said. “No large change in investment performance in one year will directly translate into the same level of change in employer rates in a single year.”
If a 20% negative investment return is sustained through the current fiscal year, contribution rate increases of between 2% and 4% would not be seen until fiscal 2011 for the state and school employers, and fiscal 2012 for other public agency employers, according to a CalPERS statement.
CalPERS had a 102% funded status as of June 30, 2007, and its staff estimates that the funded ratio declined to 92% by June 30, 2008, after recording a negative 2.5% investment return for fiscal 2008.