The financially beleaguered state government and school districts probably will be paying more for their employees’ pensions, starting next summer.
A key committee of the board of the California Public Employees’ Retirement System on Tuesday voted 6 to 2 to cut its benchmark assumed rate of return on its investments to 7.5% from a two-decade-old target of 7.75%.
The change, if approved Wednesday by a majority of the full 13-member board, would cost the state general fund an additional $167 million, boosting the total bill for the 2012-13 fiscal year to approximately $3.7 billion.
School districts would be tapped for an additional $137 million to cover the retirement costs of non-teaching personnel. Cities, counties and special service districts that participate in the CalPERS program would not get higher bills, which have yet to be determined, until July 1, 2014.
The hit on government employers could have been worse.
Alan Milligan, CalPERS’ chief actuary, recommended that the pension fund’s discount rate, which forecasts assumed rates of return on its $236-billion investment portfolio, be lowered to 7.25%.
The bigger change, Milligan said, “is the best course of action for this fund in the long term.” He predicted that CalPERS had a 54% of reaching the 7.25% goal, but only a 1-in-2 possibility of hitting 7.5% in any given year.
The committee, after hearing testimony from local government officials and public sector labor union representatives, voted to take the more conservative approach.
“This is a difficult decision, a true rock-and-a-hard-place situation,” said board member George Diehr. “There’s an impact on contribution rates during a period of budget strain for state, public agencies and schools.
“But, continuing to assume something that probably is not realistic is kicking the can down the road.”