New CalPERS Costs To Be Borne By Local Governments

Sacramento, CA…Earlier this week, the Board of Directors of the California Public Employees Retirement System (CalPERS) adopted new actuarial assumptions. These assumptions stem from recent staff reviews of the overall system and needs associated with providing benefits to its members. The adoption of these new assumptions will result in employer (local government members and the State of California) contribution rates increasing.

The CalPERS Board of Directors also decided to implement a payment scheme to meet these obligations. Local governments will utilize the “20-5” option whereby the increased costs to local governments will be paid over 20 years with a five year ramp-up and a five year ramp-down. Two alternative options for local governments were considered – a “20-7” scheme or a “30-5” scheme – but neither of these options was adopted. In adopting the 20-5 scheme, payments by local government members will commence in the 2016-17 Fiscal Year. It should be noted that local governments do have the option to pay these new liabilities in advance to minimize finance costs.

RCRC expressed its concern in a letter to CalPERS last week advocating that the Board adopt the most flexible options to meet the varying conditions that exist amongst RCRC members. Some counties will have the means to pay their entire obligation in a short time frame, while there may be others that cannot meet this obligation without significant impacts on other county priorities. As such, RCRC encouraged CalPERS to adopt policies that account for this variation.

It should be noted that CalPERS adopted a different payment scheme for the State. At the urging of Governor Brown, the State’s obligations will be met with a three year ramp-up and payments will commence in the coming fiscal year. This minimizes the State’s financing costs, although it is expected to cost nearly $400 million in the coming fiscal year.

RCRC’s letter can be accessed here.