CalPERS seeking $200 million increase in funding
March 13, 2011
CalPERS staff has recommended a small change in investment projections that is likely to cost California $200 million or more. [MercuryNews]
The California Public Employees’ Retirement System Board had estimated that the pension fund’s investments would make 7.75 percent interest in future years. The staff’s current recommendation is based on a general consensus that investment returns are likely to be lower than earlier estimates.
Staff’s recommendation to lower the assumed interest rate to 7.5 percent would leave an additional shortfall that could be funded through California’s general fund or taken from the state’s operating budget, which is already facing a $26 billion deficit.
In February, CalPERS officials estimated the pension fund shortfall at about $75 billion.
Making up these types of shortfalls generally is the responsibility of employers, which in these cases are government agencies that typically cover expenses through tax dollars.
Opponents of the current public pension system contend that at its current level of benefits, it is unsustainable. The pension plans that benefit many government employees, where retirees are guaranteed a defined benefit package for the rest of their lives, are not generally in line with private sector retirement programs.
A recent report by an independent state auditing agency, the Little Hoover Commission, estimated that the 10 largest California public employee pension plans are facing a $240 billion shortfall. To make up for the deficit, some cities will have to spend one third to one half of operating budgets to support retired government employees.
Defenders of the system blame the recession and its effect on interest rates. They contend public pensions and benefits are reasonable, justified and can be sustained over time.
Last year, the CalPERS board demanded an approximately $400 million cash infusion from the state. The board is not required to get legislative approval.
When the board meets this week, it could leave the assumed interest rate unchanged which would eliminate the need to bring in more money during the following fiscal year.