CalPERS Proposes Reducing Contribution Volatility

The plan states that volatility should be reduced by 50% a year, according to the Sacramento Bee. The move is largely seen as a response to political pressure being placed on the pension system for reform. Under the new plan, a new formula would be used to calculate annual pension contribution rates from different levels of government and investment gains and losses would be spread over 15 years, not the current three.

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, according to the Bee. 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, 2000-2001 contribution rates would have been 6.5%, which would have lessened the eventual impact of later years’ increases.

According to the Bee, a final decision will be made by the board of CalPERS in April.

It has yet to be seen whether these internal changes within the massive pension plan can head off reform-minded politicians. Governor Arnold Schwarzenegger has backed the idea of setting up defined contribution accounts for new public employees to save the state money.