By Ed Mendel
Thursday, February 7, 2013

Annual state pension payments to CalPERS are expected to increase $200 million to a total of $4 billion in July. But the rate may go higher as the powerful pension board takes a new look at its risks and policies.

The nation’s largest public pension fund last week gave a joint legislative committee an update on its funding status and plans for the future, as required by recent legislation.

“For the year 2012-13 our state contribution rate was $3.8 billion,” Anne Stausboll, CalPERS chief executive officer, told legislators. “That is projected to be $4 billion in the coming fiscal year. That rate will be finalized in May, and we have a very open process leading up to that.”

The giant pension fund covers 1,576 local governments and non-teaching employees in 1,488 school districts, but the annual payment for state workers draws the most attention.

When former Gov. Arnold Schwarzenegger briefly backed a proposal to switch new state and local government hires to 401(k)-style plans, he cited soaring state worker pension costs.

CalPERS dropped the state rate from $1.2 billion in 1997-98 to less than $160 million in 1999-00 and 2000-01. A booming market yielded a brief surplus, and CalPERS spread the wealth by sponsoring a major state worker pension increase, SB 400 in 1999.

But the market fell and the surplus vanished, causing CalPERS to push the taxpayer-paid state rate to $2.5 billion in 2004-05. Schwarzenegger cited skyrocketing pension costs as he urged a switch to debt-free individual investment plans.

Then a recession and market crash punched a huge hole in CalPERS investments expected to provide two-thirds of pension money. After peaking at $260 billion in 2007, the fund dropped to $160 billion in 2009 and now has climbed back to $255 billion.

The state payment to CalPERS jumped from $2.7 billion in 2007 to the current $3.8 billion. But this 40 percent increase over five years is far short of the eye-popping “2,000 percent” increase over five years cited by Schwarzenegger.

This time, employers had not been given a contribution “holiday.” State workers aided by agreeing to increase their pension contributions, though Schwarzenegger had to hold up the budget for 100 days to get a boost from 5 percent of pay to 8 percent for most.

CalPERS adopted actuarial policies aimed at avoiding rate “shock,” a big jump in annual employer costs. And CalPERS did not impose the big rate increase, probably several billion dollars, needed to project 100 percent funding over the next 30 years.

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