Brown Urges CalPERS To Include Life Spans in Contribution Rates

On Wednesday, Gov. Jerry Brown (D) sent a letter to the board of the California Public Employees Retirement System urging members to immediately account for retirees' longer life expectancies and phase in over three years the costs associating with the longer life spans, the AP/Sacramento Bee reports (Nirappil, AP/Sacramento Bee, 2/5).

Background

CalPERS during its board meeting this month is expected to vote to begin using longer life spans when calculating taxpayer contribution rates to the pension fund.

The increase in contributions is expected to range from 2.5% to 6.4% of payroll at the end of a five-year phase-in period (California Healthline, 1/22).

In December 2013, CalPERS staff recommended considering new demographics when setting contribution rates for fiscal year 2016-2017.

Details of Letter

In the letter, Brown noted that waiting two years to acknowledge the changes in demographics could cost the state an additional $3.7 billion over the next 20 years. The pension fund already faces a $45 billion deficit, according to the AP/Bee.

According to H.D. Palmer, spokesperson for the state Finance Department, the additional costs would be caused by delaying changes to:

• Contribution rates;
• Life expectancy; and
• Projected return on investment.

Brown wrote, "No one likes to pay more for pensions, but ignoring their true costs for two more years will only burden the system and cost more in the long run."

CalPERS Response

In a release, CalPERS noted it is reviewing the possible implications of longer life expectancies on contributions (AP/Sacramento Bee, 2/5).

The pension fund said, "We appreciate the Governor's attention to this important matter," adding, "We share a mutual goal to ensure that our fund is financially sound for the long-term" (CalPERS release, 2/5).

CalPERS staff will formally introduce their recommendations to the board next week, according to the AP/Bee (AP/Sacramento Bee, 2/5).