Calpers Will Phase in Higher Employer Costs Over 2 Years

The California Public Employees’ Retirement System’s governing board voted to let the state and local governments phase in a rate increase for employee pensions over two years.

The 13-member governing board of the largest U.S. public pension approved the plan at a meeting today, cutting the amount of the raise by about half for the year that begins July 1 for state agencies and school districts and in July 2013 for local governments, the plan said today in a statement. The second half of the increase would take effect in the following year.

“California’s public employers are continuing to face difficult budgeting challenges during this economic downturn,” Rob Feckner, the president of the board, said in the statement. “Phasing in the rate increase will give employers a little more breathing room in the first year as they struggle to make ends meet in a difficult economic environment.”

The increase stems from a lower assumed rate of return on investments adopted in March by the $235.7 billion fund’s board. That lowered the presumed annual gain to 7.5 percent from 7.75 percent. The rate is used to calculate how much money the plan, known as Calpers, will have, how much it will need to cover promised benefits, and what employers must contribute.

Under the phase-in, the state and school districts next year will pay 0.61 percentage point to 1.16 percentage points of payroll more than currently. The rate for local governments will increase by between 0.63 percentage point and 1 percentage point starting in 2013. Calpers covers school employees such as bus drivers, cafeteria workers and secretaries.

Had the board not agreed to spread the increase out, the employer rate would have climbed by as much as 2.37 percentage points next year for some state agencies, such as the Highway Patrol. Some local governments would have faced an increase of 1.94 percentage points.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net