Local agencies comprise approximately 40 percent of all CalPERS members.
City officials, representing mayors, council members, city managers, finance officers and public safety, testified during the meeting’s public comment period, each asking CalPERS to work collaboratively with all stakeholders. They all communicated the great need for viable options to address growing unfunded pension liabilities.
Although each city official shared their city’s specific story, they all communicated one uniform message — the “employer just paying more” option is no longer viable.
CalPERS retiree benefit payments are based on a shared responsibility between investment earnings, employer and employee contributions. Under current law, public employers make up for any financial shortfall when investments come up short, or assumptions such as life expectancy or economic inflation increases.
Since the Great Recession in 2008, employer contribution payments have soared, causing a crowd-out of essential public services, hiring freezes, layoffs and other strains on local budgets. Cities want greater flexibility such as the ability to modify benefits prospectively, the elimination of special pay as well as a temporary off ramp of COLA’s for high pension income earners until the pension fund is stable.
Another major driver in employer rates is the discount rate or assumed rate of return that CalPERS projects it will earn over a 60-year period. CalPERS lowered the discount rate to 7 percent, which is being phased in over three years. Discussions have begun to examine lowering this rate even further.
Every four years, CalPERS holds an Asset Liability Management workshop. Monday’s meeting included this workshop where the board received four candidate portfolios each having their own unique qualities to yield a target discount rate: 6.5 percent, 6.75 percent, 7 percent and 7.25 percent.
City officials supported the 7 percent option, which they felt struck a balance of fiscal responsibility for the fund against the ability to pay CalPERS payments.
The board will continue to solicit feedback from stakeholders and adopt its final decision when it meets Dec. 18–20.