California governor's latest budget proposal doubles pension contribution to CalPERS

By: Randy Diamond
Published: May 11, 2017 - Pensions & Investments

California Gov. Edmund G. “Jerry” Brown Jr. proposed a revised state budget Thursday that would double the state's contribution to CalPERS to $11.8 billion from $5.8 billion for the fiscal year starting July 1.

The supplemental money would be loaned to CalPERS from the state's $50 billion surplus investment fund in several installments with the aim of reducing CalPERS' unfunded liabilities that have left the $318.9 billion pension fund 65% funded.

“Absent additional action to address these growing liabilities, paying off retirement liabilities will require an increasing percentage of the state budget,” Mr. Brown's revised budget document said.

It said the state's contributions to CalPERS “are on track to nearly double” from $5.8 billion in the budget year starting in July to $9.2 billion in the 2023-2024 budget year.

The document said the additional injection will lower the state's contribution rate by 2.1% of payroll of state employees and save the state an estimated $11 billion over the next two decades, minus the cost of the low-interest loan from the state's “rainy day” fund authorized by a voter referendum in 2014. The state, and not CalPERS, would repay the loan.

California Treasurer John Chiang, who helped develop the plan with the governor, said in a statement it was a “win-win” for state workers and taxpayers, noting that the money in the surplus fund was earning less than 1%, while CalPERS has had an investment return of nearly 7% on an annualized basis over the last 20 years.

But consultants and CalPERS investment staff have estimated it is unlikely the pension fund will continue to earn those returns in the near team, estimating annualizing returns of around 6.5% for the next decade.

The California Public Employees' Retirement System, Sacramento, returned 0.61% in the fiscal year ended June 30 and 2.4% in the previous fiscal year.

The revised $179 billion budget still needs to be approved by the state Legislature.

CalPERS also serves county and local municipal workers and non-instructional personnel in California public schools. Those governmental units also contribute to the funding of the plan.

Original Story Link: http://www.pionline.com/article/20170511/ONLINE/170519959/california-governors-latest-budget-proposal-doubles-pension-contribution-to-calpers