On Wednesday, the CalPERS board of administration approved new contribution rates, requiring the state to pay 5.7% more in fiscal year 2012-2013 for state employee pensions, the Sacramento Business Journal reports.
The $213 million increase is necessary because CalPERS recently approved a change in economic assumptions (Anderson, Sacramento Business Journal, 5/17). In March, the CalPERS board voted to lower its discount rate from 7.75% to 7.5%, following the advice of the board's actuary (California Healthline, 3/15).
The new rates will take effect July 1 (Sacramento Business Journal, 5/17).
The CalPERS board chose to phase in the higher cost over two years rather than billing the state for the entire amount immediately (Yamamura, "Capitol Alert," Sacramento Bee, 5/16).
CalPERS' Comments on Rate Increase
Rob Feckner, president of the CalPERS board, in a statement said, "We recognize that these contribution increases, though a very small part of the state's general fund, are a challenge in this economic environment."
Priya Mathur -- CalPERS' pension and health benefits committee chair -- said, "Due to the fiscal crisis, employer rates are increasing." She added, "But increased member contributions agreed to in the last two years are keeping costs lower than they were in the fiscal year 2010-2011 when the state paid $3.9 billion for pensions" (Sacramento Business Journal, 5/17).
Brown's Response to Decision to Phase In Higher Cost
In a letter to the CalPERS board, Gov. Jerry Brown (D) said the move to phase in the higher cost over two years is "not a prudent decision."
He said that despite onetime savings, the delay ultimately would cost the state general fund $145.9 million in higher interest costs over 20 years. Brown said that he included enough funding in his revised fiscal year 2012-2013 budget plan to compensate for dropping the discount rate immediately.
In the letter, Brown said, "Allowing the state to phase in the change to a 7.5% investment return will only increase costs and delay taking responsibility for our decisions."
The governor said his "intent" is for the state to pay the full share regardless of the CalPERS board's vote.
However, Democrats have said their budget plan will seek less drastic cuts to health care and welfare programs than Brown's revised budget, so they might support having the $78 million in general fund savings that would result from phasing-in the new pension rates, according to "Capitol Alert."
CalPERS' Response to Brown
Feckner responded to Brown's comments in an email, saying, "We voted for the phase-in option to make things less painful for all employers during these difficult economic times."
He added, "If the governor feels the state can make the payment in full, then I'll be happy to have someone come pick up his check today" ("Capitol Alert," Sacramento Bee, 5/16).