There’s a surprise in the upcoming budget for the California Public Employees’ Retirement System: The cost of paying for pensions is actually starting to come down.
Don’t get too excited. The charges are still high by historical standards. The state expects to spend $9.8 billion on contributions to CalPERS next year, more than double the $4.8 billion cost from 2016.
But a new CalPERS analysis projects the state’s contribution rate toward pensions will decline over the next few years.
It’s most evident in what CalPERS expects to bill the state for California Highway Patrol pensions. This year, the state is paying 69 cents toward CHP pensions for every $1 it spends on wages for officers.
The formula reflects both the costs of investing for current officers’ retirements as well as extra money the state plows into pensions to pay down debts from past CalPERS losses.
CHP pensions were especially expensive because until 2013 those officers and other public safety employees were eligible for generous pension formulas that allowed them to retire at age 50 with retirement income worth 90% of their salaries.
Next year, the state’s contribution rate for CHP pensions will drop to 64 cents for every dollar in offer pay.
Hey, that beats a number with a 7 in front of it.
Recent strong investment returns are part of the reason the contribution rate is declining a bit. Another is that the state has been on a hiring spree for CHP officers. That means more employees are paying into the fund. They put 14.5% of their earnings into CalPERS.
The new hires also earn benefits under a less generous formula and work longer to earn a full retirement. Officers hired under the post-2013 retirement formula now make up 48% of the CHP workforce, according to CalPERS.
Further out, CalPERS anticipates pension contribution rates will drop for other state workers, too.
These results, of course, are subject to change. If CalPERS misses its investment earnings targets, the state will have to kick in more money to make up for the loss. Today, CalPERS is considered underfunded because its assets are worth about 80% of what it owes over time to its beneficiaries.
