CalPERS Adjusts Contributions for Increased Longevity

The California Public Employees’ Retirement System (CalPERS) Finance and Administration Committee recommended the Board of Administration adopt new pension contribution rates for State of California and school employers that are less than originally projected, but up from the 2014-15 Fiscal Year (FY).

The changes in the rates for the 2015-16 FY are driven primarily by payroll growth, salary increases, and retirees living longer.

The state’s contribution towards pensions is estimated to increase by $487 million from $4.2 billion to $4.7 billion from the previous fiscal year, while the estimated increase for the schools pool will rise to $111 million from $1.2 billion to $1.3 billion.

The CalPERS Board has adopted several actions to reduce risk to the fund and ensure long-term stability, including new demographic assumptions in 2014 and a change to amortization and smoothing policies in 2013.  

The state contributions are increasing due to the second year of the new phased-in demographic assumptions that account for public employees living longer; the implementation of the new smoothing policies, and because the payroll of state employees covered under CalPERS has increased by about 7% over the previous year. The schools pool contribution is increasing as a result of the new smoothing policies and also as a result of an increase of about 8% in the payroll of school employees covered by CalPERS. School rates will reflect the new assumptions beginning in the 2016-17 FY.

“As the fund matures, and the retired population grows, it’s important that the rates reflect the changing demographics of our members,” says Richard Costigan, chair of the Finance and Administration Committee. “Pension plans require stable funding, and the new rates incorporate the Board’s actions over the last several years that will reduce rate volatility in the long term.”

The state pension plan is approximately 72% funded, while the school plan stands at approximately 86%, as of June 30, 2014. This represents an approximately 6% increase for both plans over the previous fiscal year. The total CalPERS Fund is estimated at 77% funded as of June 30, 2014.