CalPERS is considering small increases in employer and employee rates over decades to reduce the risk of big investment losses, a policy that also would lower an earnings forecast critics say is too optimistic.This would mean Encinitas' pension costs continuing to rise faster than payroll costs for decades.
The proposal is a response to the “maturing” of a CalPERS system that soon will have more retirees than active workers. From two active workers for each retiree in 2002, the ratio fell to 1.45 to one by 2012 and is expected to be 0.8 to 0.6 to one in the next decades.
As a result, investment losses will trigger bigger California Public Employees Retirement System employer rate increases. It’s a kind of “leveraging” effect as the investment fund becomes increasingly larger than the payroll on which rates are based.
It’s a sea change from the late 1990s when CalPERS cut employer rates to near zero for two years and sponsored a large retroactive pension increase for state workers, setting a benchmark for local police and firefighter pensions critics say is unsustainable.
Awash in earnings from a booming stock market and a funding level that briefly reached about 135 percent, CalPERS told the Legislature that, due to “superior” investment returns, SB 400 in 1999 would not increase state rates for “at least a decade.”
A 17-page CalPERS brochure on SB400 distributed to the Legislature quoted former CalPERS President William Crist: “This is a special opportunity to restore equity among CalPERS members without it costing a dime of additional taxpayer money.”
A staff report on risk last November said employer contribution rates for many CalPERS plans are at record highs, exceeding 30 percent of payroll for more than 100 miscellaneous plans and more than 40 percent of pay for 150 police and firefighter plans.
“Employers are reporting that these contribution levels are putting significant strain on their budgets and limiting their ability to provide services to the people in their jurisdictions,” said the report.
Across-the-board pay increases currently being considered by the Encinitas City Council would make the city's unfunded liabilities worse.