The state will pay about $4.3 billion towards pensions and schools will pay $1.2 billion. These required contributions are an increase by more than $450 million for the state and $55 million for school employers over current rates.
New demographic assumptions adopted by the CalPERS Board in February had a significant impact on rates for the state retirement system due to public employees living longer on average (see “CalPERS Adopt New Demographic Assumptions”). At the state’s request, CalPERS is implementing the new assumptions in fiscal year 2014-2015. School and public agency employer rates will reflect the new assumptions beginning in fiscal year 2016-2017. The increased rate for school districts adopted today continues to recognize asset losses from prior years.
“We have had to make some difficult decisions in recent months in order to strengthen the future of our fund,” says Rob Feckner, president of the CalPERS board, based in Sacramento, California. “The changes will ensure CalPERS is on even stronger footing for generations to come.”
In addition to the new assumptions, CalPERS notes that the effects of the Public Employees’ Pension Reform Act (PEPRA), a new California law, will also result in an automatic contribution rate increase for one membership category. Employees who work for the California state legislature or who are participants in the police officers’ and firefighters’ plan will contribute 0.5% more than their current rate of 10.5%. PEPRA affects members who were hired on or after January 1, 2013. PEPRA also carries a provision that requires any realized savings from negotiated employee rate increases for state employees to be allocated to pay down the unfunded liability of the state pension plan.
CalPERS notes that the state pension plan is approximately 66% funded, while the school plan stands approximately at 80% fully funded as of June 30, 2013.
“Rates will continue to rise over the next few years as we gradually phase in our new assumptions, but the costs more adequately reflect what is needed to pay for promised pensions,” says Bill Slaton, chair of the CalPERS Finance and Administration Committee.
More information about the new contribution rates can be requested from Amy Morgan, CalPERS’ information officer, by emailing email@example.com.