CalPERS: State Contribution to Drop $196M in FY 2005-2006

May 18, 2005 ( - The state of California - the scene of an increasingly bitter battle over whether to partly privatize state pensions - will end up paying $196 million less to one pension fund in the next fiscal year.

A news release Wednesday from the California Public Employees’ Retirement System (CalPERS) said contributions to cover state employees and classified school employees will be approximately $3.25 billion in fiscal year 2005-06. That is down from $3.45 billion this year.

The pension fund – the nation’s largest private pension system with $181 billion in assets – credited the contribution cutback to its new rate stabilization policies approved by the CalPERS Board in April (See  CalPERS’ Board Adopts Plan to Reduce Contribution Volatility ). These policies affect the 2005-06 contribution rate for state and school workers and the 2006-07 contribution rate for public agencies, fund officials said.

“These rates reflect our new rate stabilization methods which spread market asset gains and losses over 15 years and reduce the year to year volatility of employer contributions,” Rob Feckner, President CalPERS Board of Administration, said in the news release. “Less volatile employer contribution rates will make it easier for employers to plan their budgets in the future without significantly impacting the financial security of the fund.”

The board approved the policy to spread the fund’s market value asset gains and losses over 15 years rather than three years. The policy also widened the limits for establishing the actuarial value of assets to 80% to 120% of market value from the old 90% to 110%.

CalPERS said it had also changed the calculation of the annual contribution amount for actuarial gains and losses; moving to a rolling 30-year amortization from the current 10% amortization of such gains and losses.

In a striking reversal of earlier policy, California Governor Arnold Schwarzenegger recently backed off his plan to privatize California’s public employee pension system. Instead, Schwarzenegger’s plan may wait until the June 2006 election to be put on the ballot if lawmakers don’t craft a compromise measure in coming months. (See Schwarzenegger Pulls Back on Pension Reform ).