CalPERS reports make debt, cost difficult to see

New annual CalPERS reports no longer prominently display the pension debt of local governments as a percentage of pay, making it more difficult for the public to easily see the full employer pension cost.

An example of how the debt can get lost in the shuffle of the new policy happened last month when the California Public Employees Retirement System dropped its long-term earnings forecast from 7.5 percent to 7 percent.

To help fill the funding gap created by lower investment earnings, the annual rates paid to CalPERS by state and local government employers will gradually increase over the next eight years.

A California State Association of Counties report to its members about the new rate increase only included the CalPERS sample of higher employer rates for the “normal cost,” the amount paid for the pension earned during a year.

Not mentioned in the county report was the additional rate increase for the rapidly growing pension debt or “unfunded liability” from previous years, mostly caused by investment earnings (expected to pay two-thirds of future pensions) that were less than the forecast.

For many employers, the current CalPERS rate for the unfunded liability is higher than the rate for the normal cost. The need to pay down the unfunded liability, which grew to $139 billion this year, is the reason for the new round of CalPERS rate increases.

What tends to obscure or mask the debt in the new CalPERS reports is a change in the way rates are set and reported. The “normal cost” rate is still a percentage of pay. But now the unfunded liability rate is a dollar amount.

Instead of a total rate shown as a percentage of pay, a presentation to the CalPERS board last month and a CalPERS news release both showed the average rate increase for employers in two separate parts, each reported in a different way.

The average normal cost rate increase was reported in the traditional way as 1 percent to 3 percent of pay for most miscellaneous employees, 2 percent to 5 percent of pay for safety employees that include police and firefighters.