CalPERS Considers Plan To Cut Financial Risks Amid Cash Shortfalls

CalPERS has been developing a plan to help mitigate financial risk amid cash shortfalls, the Los Angeles Times reports.

Background

According to the Times, the pension fund's "negative cash flows" totaled $5 billion last year. Such shortfalls occur when worker contributions do not fully cover the monthly payments to retirees.

CalPERS staff in a recent report said that the pension fund faces a "significant amount of risk" despite increasing workers' contributions.

Details of Plan

Earlier this month, CalPERS staff members presented the new risk-reduction plan to the fund's board.

Under the plan, CalPERS would start shifting more money into safer investments, such as bonds.

The more conservative investments are expected to shrink CalPERS' future returns, the Times reports. As a result, taxpayers likely would need to cover more of the costs. Only workers who were hired in 2013 or after would have to make higher contributions under the proposal.

During the presentation, staffers said the changes would be implemented incrementally over the next several decades.

The board, which must approve the plan, is scheduled to consider it again in October.

Reaction

Eric Stern, a state Department of Finance analyst, said that current plan is too slow, noting that Gov. Jerry Brown's (D) administration would prefer to see CalPERS reduce its financial risks "sooner rather than later."

Meanwhile, Chris McKenzie, executive director of the League of California Cities, said that most cities support the proposal. He noted that several city finance officials believe CalPERS' investments are "too volatile."

However, McKenzie also said that about 10% of cities oppose the plan. He said, "Some said they simply can't afford it" (Petersen, Los Angeles Times, 8/30).