If the markets don't turn around by the middle of next year, California's public employers will have to make plans to kick in more money to fund retirements, according to information to be presented to CalPERS leaders today.
CalPERS' "funded status," the percentage of its long-term pension costs covered by the market value of its assets, could fall as low as 68 percent by the middle of next year, the fund's actuaries have estimated. That compares with CalPERS' 102 percent funded status as of June 30, 2007 and an estimated 92 percent funded status as of June 30 this year.
Experts generally regard 80 percent as the threshold for healthy pension funds.
The 68-percent funded status projection assumes a 20 percent loss on investments as of June 30, 2009, according to the 4-page report scheduled for presentation today at CalPERS' Benefits and Administration Committee in San Luis Obispo.
Under that scenario, employer rates would increase by 2 percent to 4 percent of payroll. The rate hikes would take effect in fiscal 2010-11 for state plans and the schools pool. Public agency employers would see their rates increase the following fiscal year.
At the other end of the spectrum, if CalPERS realizes a 20 percent gain on its assets, employer payroll contribution rates would fall between 0.3 percent and 0.6 percent from present levels.
CalPERS lost 20 percent of its value from July 1 to October 10, according to the report, "(h)owever, we are still eight months away from the end of the fiscal year and the markets still have time to turn around."
CalPERS' retirement benefits are guaranteed, so if CalPERS' assets can't meet all of its obligations, it can increase contributions rates on employers. Employees also contribute to their own retirement accounts, but that amount can only be changed through collective bargaining.
"The good news," according to the CalPERS report, "is that cushioning the impact of investment setbacks is the fact that CalPERS experienced double digit gains in the four years leading up to the 2007-2008 fiscal year ... CalPERS rate stabilization policies now spread market gains and losses over 15 years, thus reducing the volatility of employer rates."
You can read CalPERS' investment analysis, including a range of hypothetical investment outcomes and impacts to employers -- and by extension, the impact to taxpayers -- by clicking here.