CalPERS approved a proposal to change how it counts investment losses and gains aimed at filling $87 billion in unfunded obligations.
The $258.3 billion California Public Employees' Retirement System, Sacramento, will now base the contribution rates paid by state and local government taxpayers on how much the pension fund needs to reach 100% funding within 30 years. The change is projected to cause the rate those governments are charged to finance public employee pensions to increase by as much 50% over six years beginning in 2015.
The pension fund had spread out losses and gains over 15 years, a policy called smoothing, to ease the potential that governments would face sudden spikes in rate increases when investment income fails to meet projections.
CalPERS currently has about 74% of the money it needs to pay benefits over 30 years, after dropping to 61% in 2009 amid the global financial crisis that wiped out more than a third of the pension fund's market value. Under the current rates and smoothing policy, the pension fund would reach an 80% funded status within 30 years.