The California Public Employees’ Retirement System (CalPERS) pension and health benefits committee has approved new actuarial policies that are aimed at returning the system to fully funded status within 30 years.
The new rate smoothing and amortization methods used when setting employer contributions were proposed by the actuarial office to address risk identified in its annual review of funding levels.
The actuarial office recommended the rate smoothing method 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 decline at the end.
In addition to reaching full funding in 30 years, the new method will also help avoid large increases in employer contribution rates in extreme years, while maintaining a reasonable level of change in normal years. However, employer contributions will rise by nearly 50% in the short term as the plan is implemented.
To mitigate the initial rate increases, the committee voted to delay implementation for all employers, including state and schools, until fiscal year 2015/16.
“We understand that rate increases never come at a good time,” says Priya Mathur, chair of the pension and health benefits committee. “Our goal with these changes is to move toward a stronger, sound and fully funded system. The new rate smoothing method is a significant step in that direction.”
The full CalPERS board will vote on the policies today.