Administration February 19, 2014

CalPERS Adopts New Demographic Assumptions

February 19, 2014 (PLANSPONSOR.com) - The California Public Employees’ Retirement System (CalPERS) Board of Administration approved new demographic assumptions designed to ensure greater sustainability and soundness for the pension fund.
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Specifically, CalPERS’ Board approved new demographic assumptions that take into account public employees living longer based on a recent study of CalPERS membership. Findings show men are expected to live two more years than previously expected, and women a year and a half longer. The study also shows higher rates of retirement for certain member groups, including police officers and firefighters. These new assumptions will raise employer pension costs in the future.

The Board adopted staff’s recommendation for local public agencies and school districts to implement costs in the 2016-17 fiscal year, with the expense spread over 20 years and the increases phased in over five years. The Board also voted to approve implementing the increases for the State beginning in the 2014-15 fiscal year, with the cost spread over 20 years and the increases phased in over three years.

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CalPERS staff estimate the local governments could see costs rise up to 5% of payroll for average state employees and up to 9% of payroll for safety classifications in year five of the phase in. The State of California is expected to pay $1.2 billion more at the end of the three year period. The State currently pays approximately $3.8 billion for state employee pensions.

Adoption of the new assumptions marks the third change in factors that impact the long-term funding of the system. In March 2012, the pension fund lowered its discount rate from 7.75% to 7.5% citing economic conditions (see “CalPERS Lowers Return Assumption”). A year later, CalPERS changed its policies to recognize gains and losses over a shorter period and to use a 30-year fixed amortization period instead of a rolling 30-year period (see “CalPERS Approves Plan to Improve Funding”).

The Board also adopted an asset-allocation mix that lowers investment risk but largely keeps its investment strategy unchanged, holding the fund’s long-term assumed rate of return at 7.5%. CalPERS investment portfolio will have a target allocation of 47% to equities, 19% to fixed income, 6% to the inflation-sensitive securities, 12% to private equity, 11% to real estate, 3% to infrastructure and forestland, and 2% to liquidity.

CalPERS is the largest public pension fund in the U.S., with more than $277 billion in assets.

Deals and People February 19, 2014

U.S. Bank Trust and Custody Adds Portfolio Manager

February 19, 2014 (PLANSPONSOR.com) - Jorgen Gustafson has joined the U.S. Bank Institutional Trust and Custody division as a senior portfolio manager.
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As senior portfolio manager, Gustafson provides institutional clients with customized investment services. He is based in Seattle.

Gustafson reports to Jennifer Vail, chief investment officer for U.S. Bank Institutional Trust and Custody. “Jorgen brings key strengths to our team including his experience in public speaking and managing a multi-state book of business,” Vail says. “He also has a strong business development background, consistently ranking nationally in the top five of performing advisers at his former firm.”

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Gustafson has worked in the industry for seven years, most recently as a senior portfolio manager with The Private Client Reserve of U.S. Bank in Seattle. Prior to that position, he held several roles with Morgan Stanley Smith Barney, most recently serving as second vice president and complex business development officer with responsibility for revenue generation, practice management, and oversight of financial advisers.

Gustafson earned his Bachelor of Arts degree at Boise State University in Idaho.

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