By Ed Mendel
Monday, November 18, 2013

An increase in CalPERS employer rates from switching to a less risky but lower-yielding investment portfolio seemed unlikely after a two-day board workshop last week. A final decision may not be made until February.

In anonymous voting, the CalPERS board strongly preferred two portfolios that would leave the “discount rate” used to offset future pension costs at around the current 7.5 percent or higher. The discount rate is based on an investment earnings forecast.

The giant pension system, hit hard by a $100 billion investment loss during the recession, is nearing the end of a two-year plan aimed at getting to full funding in 30 years.

The first step lowered the discount rate from 7.75 to 7.5 percent in March last year, triggering an employer rate increase. A second rate increase was approved last April with the adoption of a new actuarial method.

The new direct actuarial rate “smoothing” raises employer rates over a five-year period, beginning in 2014 for the state and schools and 2015 for local government. The total increase is expected to be less than 50 percent above rates paid last fiscal year.

Now the next steps in the plan are the adoption of a new investment allocation and new economic and demographic assumptions. If adopted by the board, a new “mortality” improvement scale discussed last month could raise rates to cover longer life spans.

Action on a new investment allocation originally was scheduled for next month. But to “integrate” all of the remaining steps, a new allocation may be delayed until February for one big decision on the discount rate and a third employer rate increase.

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