CalPERS Acknowledges Lower Returns, Higher Costs to Taxpayers

On Wednesday, the CalPERS Board of Administration announced it cannot count on the high returns on investments it previously projected and that it will need hundreds of millions more from the state to fund public employee pensions, the San Jose Mercury News reports.

The news comes as public pensions face increased scrutiny over the growing costs for benefits that are more generous than what private-sector companies generally provide.

Background

CalPERS is the nation's largest public pension fund, with about $223 billion in assets.

The group last changed its estimated rate of investment return, or discount rate, a decade ago, lowering it from 8.25% to 7.75%.

Details of Lowered Discount Rate

On Wednesday, the CalPERS board voted to lower its discount rate from 7.75% to 7.5%, following the advice of the board's actuary.

The change in discount rate expectations means the state will have to pay $303 million more to cover pension costs, with $167 million of that coming from the general fund.

The adjustment raises the state's total annual pension bill to about $3.6 billion.

Reaction

Pension reform advocates said CalPERS' decision shows that the pension fund has been covering up information about how much promised benefits cost taxpayers by assuming unrealistic returns on investment.

However, Steve Maviglio -- a spokesperson for Californians for Retirement Security, a coalition of state public employee unions -- said CalPERS' vote "was a smart and sound decision and should answer critics' complaints that CalPERS isn't being realistic with its numbers."

Gov. Jerry Brown (D) -- who has asked lawmakers to pass pension reforms to reduce costs -- had no comment, according to a spokesperson (Woolfolk, San Jose Mercury News, 3/14).

Broadcast

On Wednesday, Capital Public Radio's "KXJZ News" reported on CalPERS' decision to scale back its projections about investment returns (Adler, "KXJZ News," Capital Public Radio, 3/14).