CalPERS adds investment scenarios to guide employers

The future of California’s public pension system, the nation’s largest, most likely will include higher employer contribution rates dependent on how much return its investments generate, according to an annual CalPERS report.

The State & Schools Actuarial Valuation report, for the first time, included examples of how different investment returns would affect employer contributions. The authors added those projections so employers would have a clearer idea of future costs.

The CalPERS report said employer contribution rates as a percentage of payroll would rise from about 21 percent this fiscal year to nearly 27 percent in 2019-20 if investment returns rise at an annual rate of 7.5 percent. That rate of return is the benchmark used by bond rating agencies and others to calculate the future assets and liabilities of pension funds.

The report noted actual investment returns could change the rate of employee contributions greatly. Still, even if returns reach 18.5 percent, contribution rates essentially would remain flat in the 2015-16 fiscal year.

CalPERS is still recovering from huge investment losses it incurred during the Great Recession. Those losses, which gutted the fund from $260 billion to $160 billion in 2008, spurred a reform movement that led to the passage last fall of a law backed by Gov. Gerry Brown. CalPERS has more than $265 billion in assets. In April, its unfunded liabilities were listed at $329 billion.

Public pension systems around the country are grappling with how best to ensure their viability as the baby boomer generation retires. Unions have fought some reform efforts, arguing that their collective bargaining rights are being stripped.

Despite the California reforms, some want more changes. Last month, a draft copy of a ballot initiative deigned to allow governments to make changes to future benefits of employees was leaked.

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