CalPERS mulls third rate hike in two years

By BenefitsPro


By Dan Berman

California’s public pension system, the nation’s largest, is considering its third rate hike in two years, and the extra payments required from employers might be too onerous in times of strained budgets.

“Concern has been raised that the contribution increases may be too much for employers to bear,” wrote David Lamoureux, CalPERS deputy chief actuary, and Alan Milligan, chief actuary, in a report on the proposed increase.

To address those concerns, the new rates, proposed to account for increased longevity assumptions, would be phased in over five years beginning in fiscal 2016-17. They would be amortized over 20 years and then phased out over five years.

The new rates would be about 50 percent above the current levies. For instance, most state employers contribute 21 percent of an employee’s pay to CalPERS. That would rise to 32 percent by the end of the phase in period. Employees contribute 8 percent of their pay.

The new mortality assumptions used by CalPERS project longer life spans for retirees. Men’s longevity would increase faster than that of women.

The actuarial report said payroll costs would increase 2.5 percent to 6.4 percent. The amount would vary depending on which pension plan was involved and the proportion of male to female employees.

The CalPERS board is expected to vote on the proposed increase in February.

Changes in actuarial assumptions that have led to rising unfunded liabilities have caused cities and states and across the country to push for pension reforms. California Gov. Jerry Brown pushed changes to benefits through the legislature in 2012. Unions usually fight such changes, arguing their collective bargaining rights are being usurped.

Originally published on BenefitsPro.com