By Ed Mendel
December 15, 2014
CalPERS is encouraging government employers to make extra payments to reduce their pension debt or “unfunded liability” if budgets allow, saying millions can be saved in the long run.
Annual CalPERS reports to 1,581 local government agencies this fall began showing estimates of future savings when extra payments, going beyond the required amount, are made to the pension fund.
The Newport Beach city council approved a plan for extra payments to CalPERS last month that is expected to save $47 million over 30 years, compared to the standard payment plan.
Huntington Beach approved extra payments to CalPERS last fiscal year based on an analysis by an independent actuary, Bartel Associates, showing each additional $1 million contributed to CalPERS saves $5 million over 25 years.
CalPERS estimates that about 60 employers made 111 extra payments to CalPERS last fiscal year. The new “alternate amortization schedules” in the annual reports to local governments are a response to requests from employers.
“The message we want to get out to employers is that if they have the ability, the financial means, to pay off some of this unfunded liability, it’s a smart business move and can really benefit them over the long run,” Anne Stausboll, CalPERS chief executive officer, said last week.
CalPERS debt or unfunded liability ballooned after heavy investment losses during the recession. The pension fund lost about $100 billion, plunging from $260 billion to $160 billion before climbing to $294 billion last week.
Projected investment returns and employer-employee contributions covered 100 percent of future pension obligations in 2007, dropped to 60 percent two years later and recently increased to an estimated 77 percent.
To close the funding gap, a California Public Employees Retirement System employer rate increase of roughly 50 percent is being phased in over a half dozen years, squeezing funding available for other government programs.
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