The California Public Employees’ Retirement System (CalPERS) today said employer rates for fiscal year 2008-09 are unaffected by the market losses experienced in October of this year. Employer rates were built using investment returns from earlier periods, and the effect of the current market downturn in October will be unknown until investment returns are determined for the fiscal year ending June 30, 2009.
“One thing is known,” said Kurato Shimada, Chair of the Benefits and Program Administration Committee, after the Committee received a report from its Chief Actuary Tuesday. “When the dust settles, we will apply the impacts of losses or gains over a 15 year period. No large change in investment performance in one year will directly translate into the same level of change in employer rates in a single year.”
“Cushioning the impact of investment setbacks is the fact that CalPERS experienced double-digit gains in the four years leading up to the 2007-08 fiscal year,” said Ron Seeling, Chief Actuary. “We had saved 14 percent of the fund for cushioning the blow of a future market downturn, and our smoothing policy is working as it should.”
CalPERS employer rate stabilization policy reduces the volatility of employer rates by spreading market gains and losses over 15 years, reducing the impact of short term market volatility on employer rates.
As of June 20, 2008, CalPERS had an overall funding ratio of 92 percent (market value of assets divided by total pension obligations for all 1.6 million members).
“Rates for the fiscal year that begins July 1, 2009, will be based on the investment performance of the 2006-07 fiscal year for public agencies and 2007-08 for the state government and schools – not on the current fiscal year,” Seeling emphasized.
Even a 20 percent negative investment return for the current 2008-09 fiscal year wouldn’t affect state and schools contribution rates until the fiscal year that begins July 1, 2010, and public agency employers until July 1, 2011, he said. It could be possible to see an increase in rates that range from 2-4 percent of payroll.