CalPERS Board Votes To Raise Cost Of Pensions For State Workers

SAN FRANCISCO (CBS SF) — The surging stock market is doing wonders for 401k plans, but a pension fund that millions of Californians count on has been losing an enormous amount of money.

The California Public Employees’ Retirement System or CalPERS is the largest public pension fund in North America. There are nearly two million members and the fund is worth more than $300 billion.

On Wednesday, the board of CalPERS voted to raise the cost of pensions, meaning state and local governments will have to come up with billions more to pay for benefits promised to employees.

Betty Broussard said her pension through CalPERS is why she stayed in her government job.

“I work with the disabled. And I work very hard,” said Broussard. “If they decrease that, people aren’t gonna have anything to look forward to.”

CalPERS members are public employees who work for schools and local government agencies including social workers, California Highway Patrol officers, police officers, teachers and firefighters. These hundreds of thousands of people may be paying more for that pension.

In order to pay the benefit, you have to pay from three sources, explained Richard Costigan of the CalPERS Board of Administration. And those three sources are either the investment returns, the employer contribution or the employee contribution.

Right now, 64 percent of pension benefits come from investment returns, 22 percent are from state and local governments and 13 percent are from employees.

On Wednesday, CalPERS voted to decrease the expected returns on investments from 7.5 percent to 7 percent. That means the state and local governments and employees will have to pay more to make up the shortfall.

“The last 10 years, really since the great recession, has been fairly stagnant,” said Costigan. “We may have had highs in the markets and lows in the market but we have not had a lot of significant growth.”

According to CalPERS, this change means that in five years, the bill for just the state workers and school employees, will be $2.3 billion more.

Former San Jose Mayor Chuck Reed is a pension reform advocate. He says the change doesn’t go far enough, but is a good start.

“So lowering the assumed rate of return is really a step towards the reality of the fact that pension investments are not going to be as lucrative as they have been in the past,” said Reed. “And we need to put more money into the system to ensure that the system doesn’t fail.”

Costigan agreed with Reed’s assessment.

“I appreciate Mayor Reed’s comments,” said Costigan. “He’s reading from the same reports we are. Aand what we’re looking at is, this is again step one on a path going forward. It’s not the end all.”

When asked about increasing costs in California at a time when people are nervous about losing federal funds under a Trump administration, Costigan was sympathetic. However, he said the board members have to do what’s best for the fund, regardless of other factors.

More from Melissa Caen
Comments

One Comment

  1. In other words, a 7% return is no better than the 10-year return for Vanguard’s S&P 500 or Total Stock Market Index mutual funds. A dirt-cheap-to-operate index fund BEAT CalPERS overpriced investment managers. I say FIRE them, and put the money in index funds.

  2. CalPERS investment managers are simply not worth their million-dollar salaries.
    Get rid of them !! Their brilliant decisions gave us huge losses during the recession years, thanks to super-risky real estate investments. Now, seven years later, they’re easily outperformed by plain vanilla, low-cost index funds. I say again, FIRE their useless behinds.

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