California state pension fund calls for $600 million rate increase

The Sacramento BeeMay 19, 2010 

CalPERS is on the verge of imposing a $600 million rate increase on the state, intensifying the political debate over the size of state employee pensions and their cost to taxpayers.

The increased contribution would put additional pressure on a state budget that's already facing a $19.1 billion deficit.

With almost no discussion, the CalPERS Benefits and Program Administration Committee voted unanimously Tuesday to increase the state's annual contribution to $3.88 billion, an 18 percent hike, starting with the fiscal year beginning July 1. The decision has to be ratified by the CalPERS full Board of Administration, which will vote on the matter today.

Gov. Arnold Schwarzenegger seized on the CalPERS committee vote, calling it fresh proof that the state's pensions are on an "unsustainable" path. Schwarzenegger and his allies are pushing legislation to overhaul public pensions, saying they're too costly given workers in the private sector are coping with frozen pension plans and volatile 401(k) returns.

But Schwarzenegger is powerless to do anything about the upcoming increase in the contribution to CalPERS. By law, the California Public Employees' Retirement System has unilateral authority to dictate how much the state contributes to the fund.

Last December, CalPERS signaled the state's contribution would increase by $200 million a year, mainly to help it recover from the enormous investment losses in late 2008. Since then, CalPERS has determined it needs even more money because of new assumptions about life expectancies and retirements.

Employees are "living longer, retiring sooner," said Alan Milligan, the fund's interim chief actuary.

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