CalPERS' Board Adopts Plan to Reduce Contribution Volatility

April 20, 2005 ( - As expected, the board of the California Public Employee's Retirement System (CalPERS) has approved a plan to reduce contribution volatility in the massive pension fund.

According to a  press release from the pension fund, the Board has adopted a new policy that will spread the system’s market value asset gains and losses over 15 years, rather than the current three years. The plan to do so was first proposed in March (See CalPERS Proposes Reducing Contribution Volatility ).

The new provisions adopted will also widen the “corridor” limits for establishing the actuarial value of assets from 90% to 110% of market value to 80% to 120% of market value, according to the news release.

CalPERS hopes that these moves will reduce contribution volatility by 50%. The problem of volatile contribution rates was seen most recently in the bear market, when stock losses forced employers to pay substantial increases in pension plan payments.

Because of the downturn in the market, no pension contributions were paid in 2000-2001. This year, it was 16.5%. According to the plan adopted by the fund, 2000-2001 contribution rates would have been 6.5%, which would have lessened the eventual impact of later years’ increases.

“This is the first of many steps towards stabilizing rising employer costs,” said Rob Feckner, President CalPERS Board of Administration, in the news release. ” This is a common sense approach that helps employers and protects retirement security for all members.”