By Ed Mendel
Monday, November 4, 2013

A new study shows CalPERS members are living longer. It’s the first step in a review of workforce changes and investment polices that could lead to higher contribution rates for employers and possibly employees.

After years of keeping employer rates low, CalPERS in April switched from an actuarial method that spread investment gains and losses over 15 years to a more direct method, boosting employer rates roughly 50 percent over the next seven years.

Now the next phase of a CalPERS plan to reach full funding looks at three things that could push rates even higher: investment allocation, earnings forecast used to offset or discount pension obligations and demographic changes including mortality.

“Over the last 20 years or so life expectancy for a new retiree has gone up about 2½ years for males and about one year for females,” the CalPERS chief actuary, Alan Milligan, told a board workshop on mortality projections last month.

Life spans have been steadily increasing since the turn of the last century. A new mortality improvement scale issued by the Society of Actuaries last year reflects the latest rise in longevity, which could trigger a boost in employer pension rates to cover the cost.

The new “scale BB” widely used by public pensions is based on Social Security data. At CalPERS, a new 1997-2011 experience study shows members “significantly exceed” the new Social Security-based scale, possibly calling for an even higher rate increase.

“I can tell you this graph is giving me a bit of heartburn in terms of what to recommend in the way of future mortality improvements,” Milligan said, referring to one of the slides shown the board during the presentation.

The structure of 2,000 separate CalPERS plans vary. So increasing the estimated time retirees will receive pensions yields a range of results. At the workshop, the board was shown potential rate increases based on a sample of 10 plans.

To read entire column, click here.