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Calpers seeks bigger contributions from cities and counties

Retirement plan brochures are seen on display at the Calpers regional office in Sacramento, California October 21, 2009. REUTERS/Max Whittak
Retirement plan brochures are seen on display at the Calpers regional office in Sacramento, California October 21, 2009. REUTERS/Max Whittak

SAN FRANCISCO (Reuters) - Leaders of California's $255 billion public pension fund gave initial approval on Tuesday to accounting changes aimed at bolstering the fund's long-term finances that would further raise contribution rates for cities and counties.

The changes proposed by actuarial staff of the California Public Employees' Retirement System, known as Calpers, include reduced periods for so-called smoothing and amortization of assets aimed at getting the pension system fully funded in 30 years.

If the Calpers board approves the accounting changes on Wednesday, they would be used to set contribution rates for state agencies, schools and local governments using the fund in actuarial valuations next year for the 2015-2016 fiscal year.

Calpers, the biggest U.S. public pension fund, is about 70 percent funded, a level its actuarial staff in a report said was at risk of sinking absent accounting changes. The report said the retirement system faced a 26 percent to 34 percent chance of seeing its funding level fall below 40 percent over the next 30 years under current actuarial policies.

Proposed changes to the policies were presented to members of the Calpers board members on its pensions and health benefits committee as assets held by Calpers hover near their peak value of about $260 billion set in October 2007.

The value of Calpers's assets sank to about $160 billion during the financial crisis, prompting a hard look for ways to mitigate the fund's investment risk and address its long-term sustainability.

The growing cost of public pensions has become a key issue for state and local governments across the nation as guaranteed payments to retired employees have often forced cuts in spending on public services.

State and local officials are also concerned about the long-term fiscal consequences of the growing number of retired public employees as they age.

Calpers's staff see new actuarial policies as a way during severe market downturns to help shield the retirement system's funding level for paying pension obligations over 30 years, which slumped to about 61 percent during the recession.

Policy changes, however, will raise pension costs for local governments across California that use the system to manage pension accounts. Taxpayers could be called on to pick up the cost of the changes.

"Adopting the proposed method will result in higher peak contribution rates, which may put more strain on employers' budgets," according to a report by the fund's actuarial staff.

Some employers may see contributions increase by as much as 50 percent. Employee contribution also could increase depending on contracts with their employers.

Contributions to Calpers were slated to rise before board members were presented with the proposed accounting changes.

The state government's annual contribution to Calpers ahead of any accounting changes was seen rising in the fiscal year beginning in July by $200 million, to $4 billion, while local governments contracting with the fund will see rates rise in July after the fund last year lowered its assumed rate of return to 7.5 percent from its longstanding level of 7.75 percent.

(Reporting by Jim Christie; editing by Tiziana Barghini and Leslie Adler)

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