By Paula Aven Gladych
The California Public Employees’ Retirement System Pension & Health Benefits Committee approved a plan this week aimed at returning the system to fully funded status within 30 years.
The plan includes a rate-smoothing approach with a 30-year fixed amortization period for gains and losses. The amortization would have a five-year ramp-up of rates at the start and a five-year ramp-down at the end.
"This was one of the most difficult, yet most important decisions we have had to make," said Rob Feckner, president of the CalPERS
board. "Moving our plans more swiftly toward full funding will ensure a sustainable pension system for our members, employers and ultimately taxpayers over the long-term."
To ease the pain, the board delayed the implementation of the plan until 2015-16 for the state, schools and public agencies in its pension plan.
In addition to closing the funding gap in 30 years, the plan is designed to help avoid large increases in employer contribution rates.
"While this was a tough decision, it was the right thing to do for CalPERS," said Priya Mathur, Pension & Health Benefits Committee chair. "Though rates will initially be higher in the short term, we can now provide better transparency and greater rate predictability, which our employers need for budgeting purposes."
Based on investment return simulations, increasing contributions more rapidly in the short term is expected to result in almost a 25 percent improvement in funded status.
CalPERS is the largest public pension
fund in the U.S. with approximately $256 billion in assets. The retirement system administers retirement benefits for more than 1.6 million current and retired California State, public school and local public agency employees and their families on behalf of more than 3,000 public employers in the state, and health benefits for 1.3 million enrollees.
Originally published on BenefitsPro.com