CalPERS Decision Will Increase State Pension Liabilities

The vote adds 99 types of supplemental pay that will be used in calculations of pension benefits. “Today’s decision by the CalPERS Board brings much needed clarity to the definition of pensionable compensation for new CalPERS members,” says Rob Feckner, president of the CalPERS Board of Administration. “If the law is ever changed, CalPERS will of course amend our regulations accordingly.”

However, in a statement, California Governor Jerry Brown said: “This vote undermines the pension reforms enacted just two years ago.” The Public Employees’ Pension Reform Act of 2013 (PEPRA) narrowed the definition of pensionable compensation for public employees in an effort to address “pension spiking,” barring one-time or ad-hoc payments aimed at spiking salaries in order to increase pension benefits.

An article by credit rating agency Fitch Ratings said the “decision expands the definition of pensionable compensation, in apparent conflict with PEPRA, and will increase pension costs for public employers if implemented.” The decision allows temporary and special assignment payments, among numerous other categories of compensation outside of workers’ base pay, to be included along with base pay in pension calculations.

“The expanded definition of pensionable compensation exposes public employers to higher pension liabilities and contribution expenses, and appears to be a step backward from recent reforms,” Fitch says.

“The magnitude of impact from this decision is not yet clear, but it raises more questions about the sustainability of California’s pension reform efforts, which continue to face legal and institutional challenges. Particularly worrisome to Fitch is the absence of detailed information on the analysis of its projected costs,” the agency adds.

The Fitch article can be accessed at www.fitchratings.com.