CalPERS Cuts Investment Targets, Increasing Strain on Municipalities (New York Times link): The board of California’s state public pension system, CalPERS, voted Wednesday to lower expectations for future investment returns, a step that will increase pressure on the budgets of towns and cities across the state.
CalPERS, a giant with roughly $300 billion in assets, has long been a bellwether among America’s thousands of public pension funds because of its sheer size and influence in the investment industry. It manages the investments for more than 1.7 million current and future retirees, making it the nation’s largest public fund outside the federal government. CalPERS’ move to lower its investment expectations is likely to prompt pension systems in other states to do the same.
“This is very monumental for the organization,” one trustee, Richard Costigan, said at a public meeting just before the vote.
With the move, CalPERS is changing its business plan, so that investment returns will cover less of the cost of retirees’ pensions than previously. That will force local governments to pay more, either through higher taxes or reduced public services. Public workers in California will have to chip in more, too.
At the same time, the move has little chance of satisfying critics of public pension systems who have argued for years that the sector’s methodology is dangerously flawed — not just because many investment projections are overly optimistic, but also because pension plans use those projections to calculate their liabilities, violating basic economic principles.
CalPERS moves to slash investment forecast. That means higher pension contributions are coming. (Sacramento Bee link): The cost of that government pension is about to go up again, for California taxpayers as well as some public employees.
CalPERS moved to slash its official investment forecast Tuesday, a dramatic step that will translate into billions of dollars in higher annual pension contributions from the state, local governments and school districts.
Employees hired after January 2013, when a statewide pension reform law took effect, will also have to kick in more money. Older employees could see higher contributions, too, although that would be subject to contract bargaining.
CalPERS’ Finance and Administration Committee voted 6-1 to lower the forecast from 7.5 percent to 7 percent in phases over three years, starting next July. Although the committee’s vote must be ratified by the entire board Wednesday, most other board members indicated they support the move as well.
It would be the first adjustment to the forecast in four years.
The move is a recognition that investment returns are falling and that the California Public Employees’ Retirement System, which is just 68 percent funded, needs higher contributions from government agencies to solve its long-term problems.
Mod: By "government agencies" they're talking about places like Sierra Madre's City Hall. Just in case you weren't aware.