12/02/2021

CalPERS considers paying down new debt faster

CalPERS plans to get local government reaction to a proposed new policy that would pay down new pension debt over a shorter period, yielding big savings in the long run but also requiring larger payments in the early years.

Employer rates for current debt or “unfunded liability” would not be changed, Scott Terando, CalPERS chief actuary, told the board last week.

But for new debt from investment losses, the payment period would be shortened from the current 30 years to perhaps 20 years, Terando said, and the higher debt payments from years with investment losses could be offset by lower payments from years with gains.

“We wouldn’t have to reamortize the existing bases,” said Terando. “That’s a nice way to transition from the old policy to the new policy without immediately impacting a lot of employers.”

A decision on the tentative proposal, still in flux, could come in November. A lengthy CalPERS routine review, the first since 2014, is determining if there is a need to alter investment allocations, the earnings forecast, actuarial assumptions, and risk management.

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