The CalPERS action follows several months of discussions by CalPERS staff with investors, economists, employers (including CSBA) and employees. The problems with the CalPERS fund are considerable and substantial in that the system has an annual deficit of about $5 billion, and that number is growing by $1 billion a year. The investment portfolio is projected to grow by only 6.2 percent annually over the next 10 years. That difference between 6.2 percent and 7.5 percent has left the system only 68 percent funded with projections of that figure worsening each year.
The impact on schools from the higher contribution rates could reach an additional $500-750 million on an ongoing annual basis on top of the $6 billion in already scheduled increases between CalPERS and CalSTRS.
While the CalPERS Board has the authority to set its contribution rates, for CalSTRS to follow suit, legislation is needed. A representative from the Department of Finance stated support for the move by CalPERS, and while the representative was speaking as an employer, it is no secret how Governor Brown feels about debt and keeping public pension systems afloat. Legislation or budget trailer bill language could be passed in the 2017-18 Legislative Session, setting forth a similar additional increase in employer contributions for CalSTRS, which covers certificated employees.
More information is likely forthcoming with the state budget season starting next week when Governor Brown releases his Budget Proposal. Addressing employer contribution rates is one of CSBA’s priorities for the current Legislative Session.