Shopping Cart
Your Cart is Empty
Quantity:
Subtotal
Taxes
Shipping
Total
There was an error with PayPalClick here to try again
CelebrateThank you for your business!You should be receiving an order confirmation from Paypal shortly.Exit Shopping Cart

California School Fiscal Services

Providing comprehensive business office and consulting services to K-12 traditional schools and charters

Blog

Blog

CalPERS cuts earnings forecast; school districts to pay more for pensions

Posted on December 28, 2016 at 12:35 AM
The impact of this should be front and center on our radar.  

---------------------------------------------
EdSource
John Fensterwald
December 21, 2016

School districts, already bracing for record pension contributions for school employees, will face additional costs they hadn’t expected as a result of a decision Wednesday by the California Public Employees’ Retirement System.

 

The CalPERS board voted to lower the expected rate of return on its investments from 7.5 to 7 percent. That action will force local governments, school districts and the state to make up the difference by annually paying billions of dollars more into CalPERS to keep the nation’s largest public employee pension fund afloat.

 

The board acted because the pension fund remains underfunded and vulnerable to further erosion without more money. Since investments aren’t generating what the board had counted on and the board isn’t planning to revise its investment strategy for two years, it’s turning to employers and, to an extent, employees for larger contributions.

 

The decision puts the earnings forecast closer to what financial advisers say CalPERS can realistically expect over the next three decades. It will also put pressure on the board of the California State Teachers’ Retirement System to follow the lead and consider reducing its identical 7.5 percent earnings forecast on investments when its board of directors meets this spring.

 

CalPERS serves hourly school employees, including bus drivers and clerks, while CalSTRS serves teachers, administrators and other school employees who have a teaching credential. Since CalPERS members make up a smaller portion of school staff and generally get smaller pensions, potential changes to CalSTRS contributions rates would have bigger repercussions. However, only the Legislature has the authority to set CalSTRS district and employee contribution levels, and it’s too soon to say what, if anything, might happen in 2017. Legislators would look to Gov. Jerry Brown for a signal.**

 

The CalPERS board accepted a board committee’s recommendation to phase in the lower rate of return over three years, starting next year for the state and in 2018-19 for school districts and local governments. CalPERS projected that a drop of 0.5 percent in the rate of return would increase pension contributions by school districts and local governments by 20 percent.

 

Dennis Meyers, an assistant executive director of the California School Boards Association, estimated that the lower investment forecast would add $400 million to $600 million to school districts’ costs. Combined with already scheduled cost increases to CalPERS and CalSTRS, higher pension costs will consume every dollar of projected revenue increases for 150 to 200 school districts in coming years, he told the CalPERS board committee during a hearing Tuesday. Those are districts get little supplemental money for English learners and low-income students under the Local Control Funding Formula.

 

School employees hired since the Legislature passed the Public Employees’ Pension Reform Act four years ago will share a portion of the higher CalPERS contributions, but school employees hired before then won’t pay more. Districts will bear the increase.

 

The Legislative Analyst’s Office in November wrote that the 2012 pension reform act would add $6 billion in combined annual CalSTRS and CalPERS pension expenses for K-12 and community colleges by 2020-21, when the costs are fully phased in. CalSTRS pension contributions will increase about 2 percentage points of payroll annually between now and then. For CalPERS, the increase will be closer to 1.5 percentage points each year. The impact of CalPERS’ assumed lower investment return will gradually add another 2 percentage points to payroll costs, according to School Services of California, a school consulting firm.

 

Meyers and representatives of other government organizations didn’t oppose the CalPERS board’s decision in testimony Tuesday. They acknowledged that higher contributions would be needed in the mix of options to sustain the system long-term.

 

During the recession, the value of CalPERS’ investments fell $100 billion to about $160 billion, and the fund has not fully recovered. CalPERS’ assets are at only 68 percent of what’s needed to fully fund future obligations.

 

The Dow Jones Industrial stock average neared 20,000 this week and other indexes were at record highs, adding irony to the timing of the board’s vote. But Ted Eliopoulos, CalPERS chief investment officer, said the board should expect less than a 7.5 percent return and more market volatility in coming years. Investment earnings for the past two years ­– 0.6 percent during the last fiscal year and 2.4 percent the year before – were far below the 7.5 percent goal, known as the “discount rate.”

 

CalPERS’ other challenge is that it is selling $5 billion more from its investment portfolio than it is taking in from contributions from employers and employees, and that amount is increasing about $1 billion annually. Larger contributions will reduce that gap, advisers said.

 

The CalPERS board reaffirmed the 30-year, 7.5 percent earnings target two years ago, but its financial advisers concluded market conditions have changed since then. They’re now forecasting annual earnings averaging 6.2 percent over the next decade, followed by better than average returns for the following 20 years. The odds of hitting the revised 7 percent target would be 50-50, they said. Lowering the rate more would require even higher contributions from employers and the state; board members indicated that, for now, a half-percent reduction is an acceptable compromise.

 

For years, critics have called for CalPERS and CalSTRS to assume a lower investment return – or face financial shortfalls that will force higher costs on the next generation of Californians. Joe Nation, a former state legislator and a public policy professor at Stanford University, said that the board’s action didn’t go far enough. The discount rate should be closer to 6.25 percent, he said.

 

“If CalPERS only takes baby steps, its problems will never be solved,” he said. “I understand the political pressure, but this guarantees pain in the long run will be higher.”

 

An assumed 7 percent forecast will make CalPERS among the most conservative of the nation’s large pension funds. But several board members acknowledged that further, unspecified actions would be needed.

 

“This is not the end of the conversation,” said state Controller Betty Yee, a board member. “We have an opportunity to stabilize the system.”

 

No one said which of the available options – dicier investments with higher returns, even higher employee or employer contributions, or lower employee benefits – would be the most palatable and realistic.


Categories: None

Post a Comment

Oops!

Oops, you forgot something.

Oops!

The words you entered did not match the given text. Please try again.

133 Comments

Reply Effoleage
12:33 PM on December 8, 2022 
Antihipertensivo Pfizer Antihipertensivo Pfizer Antihipertensivo Laboratorios Ber Antihipertensivo Nova Argentia Antihipertensivo Baliarda Antihipertensivo Casasco Antihipertensivo Ivax Arg ziphealth viagra
Reply Cliewaway
2:24 AM on November 21, 2022 
Background The Tamoxifen and Exemestane Adjuvant Multinational TEAM trial investigates the efficacy and safety of adjuvant exemestane alone and in sequence after tamoxifen in postmenopausal women with hormone sensitive early breast cancer clomid vs hcg
Reply heipmemia
4:49 AM on November 20, 2022 
doxycycline and prednisone covid Interestingly, ER?± was identified as the first direct target of MTA1 in 2001, establishing a direct connection between MTA1 and the NuRD complex in the transcriptional repression 41
Reply zinasse
4:10 PM on November 16, 2022 
ivermectine msd 1038 nn1620 2006
Reply adarighiz
9:24 AM on November 15, 2022 
lasix iv po conversion On the basis of these findings, we explored the relation of profound TET loss of function to cell lineage specification and oncogenic transformation
Reply linsImmes
7:42 PM on November 10, 2022 
With mets to the bones and skin nolva tamoxifen Oral supplementation or diet modifications of selenium to a specified range will be effective in reducing the risk of developing cancer of any type in women with high risk of breast cancer, as compared to placebo
Reply Ererdrige
9:19 PM on November 6, 2022 
520 DALGEN BIOGEN Doxazosina, mesilato de 4 mg Caja x 14 tabs priligy review youtube
Reply Assiciags
10:58 AM on October 29, 2022 
stromectol precio mexico 2015, 54, 983 987; g A
Reply Assirtuat
7:25 AM on August 18, 2022 
ivermectin pills online Efectos Secundarios De La Cialis
Reply Gorbeld
11:31 AM on July 29, 2022 
cialis 5mg online purchase kamagra st by ajanta
Reply lebron shoes
4:10 AM on March 25, 2022 
My husband and i felt really peaceful that Jordan managed to finish up his studies because of the precious recommendations he was given in your blog. It is now and again perplexing to just continually be handing out methods which usually most people might have been making money from. Therefore we already know we now have you to appreciate because of that. The type of explanations you have made, the straightforward site navigation, the friendships your site aid to engender - it's got most spectacular, and it is leading our son in addition to our family feel that the concept is fun, which is extremely indispensable. Many thanks for all!
lebron shoes http://www.lebronjames-shoes.us.com
Reply birkin bag
4:09 AM on March 25, 2022 
My spouse and i have been really excited when Ervin could do his web research using the ideas he obtained in your weblog. It's not at all simplistic just to find yourself handing out guidance that some others might have been making money from. We really figure out we've got the website owner to be grateful to because of that. The most important illustrations you made, the straightforward site navigation, the friendships you will give support to promote - it's most impressive, and it is facilitating our son and us reckon that the matter is fun, which is very mandatory. Many thanks for everything!
birkin bag http://www.birkinbag.us.com
Reply kyrie 4
4:07 AM on March 25, 2022 
I needed to write you this very small remark to help say thanks a lot the moment again relating to the stunning suggestions you've provided on this page. It was simply pretty generous of you to present unreservedly all that a few people would've offered for sale for an ebook in making some money for their own end, and in particular now that you could possibly have done it in the event you desired. The points additionally acted as a good way to be sure that other people online have a similar interest similar to my own to see great deal more concerning this condition. I am sure there are a lot more pleasurable sessions in the future for people who go through your website.
kyrie 4 http://www.kyrie4shoes.us
Reply kyrie 7
4:06 AM on March 25, 2022 
I definitely wanted to construct a message to be able to appreciate you for some of the fabulous solutions you are giving at this website. My incredibly long internet look up has finally been compensated with wonderful knowledge to go over with my friends. I 'd suppose that many of us visitors actually are extremely blessed to exist in a good place with many brilliant individuals with interesting strategies. I feel extremely lucky to have come across your entire website page and look forward to some more amazing minutes reading here. Thanks again for all the details.
kyrie 7 http://www.kyrie7.us
Reply yeezy
3:21 PM on March 19, 2022 
Thank you so much for providing individuals with such a splendid possiblity to read critical reviews from this web site. It's usually very ideal and as well , stuffed with amusement for me and my office fellow workers to search your site more than three times in a week to learn the fresh items you will have. And definitely, I'm also certainly fulfilled with all the perfect methods you give. Some two ideas in this article are truly the most impressive we've ever had.
yeezy http://www.yeezy-sneakers.us
Reply curry 7 sour patch
8:47 PM on March 16, 2022 
I together with my buddies have been following the excellent solutions found on your web blog and then unexpectedly developed an awful feeling I never expressed respect to the web blog owner for those techniques. All of the boys are actually absolutely joyful to read them and have in effect in truth been loving those things. Appreciation for getting well accommodating and then for having this kind of great ideas millions of individuals are really desirous to understand about. My very own honest regret for not saying thanks to earlier.
curry 7 sour patch http://www.curry7.us
Reply supreme clothing
10:40 PM on March 14, 2022 
Thank you so much for providing individuals with an exceptionally superb chance to discover important secrets from this website. It is usually so pleasing and packed with a good time for me personally and my office friends to search your web site no less than 3 times per week to find out the newest secrets you will have. And lastly, we're actually happy concerning the attractive ideas served by you. Some 3 points in this article are without a doubt the simplest I've ever had.
supreme clothing http://www.supremeshoodie.com
Reply off white t shirt
10:40 PM on March 14, 2022 
I'm just commenting to let you understand of the outstanding encounter my wife's princess obtained browsing yuor web blog. She picked up some issues, with the inclusion of what it's like to have an awesome giving mindset to let others with no trouble grasp a variety of impossible things. You actually did more than our desires. Thank you for providing such good, trustworthy, edifying and easy thoughts on that topic to Tanya.
off white t shirt https://www.offwhitesoutlet.com
Reply jordan 6
10:40 PM on March 14, 2022 
My spouse and i got so thankful that John managed to carry out his research out of the precious recommendations he made from your very own web page. It's not at all simplistic to simply continually be giving out tricks that many some people have been selling. So we figure out we have you to be grateful to for that. Those illustrations you've made, the easy web site menu, the relationships you assist to create - it is many spectacular, and it's really assisting our son in addition to our family consider that the situation is excellent, and that's particularly serious. Thank you for all the pieces!
jordan 6 http://www.jordan6.us.com
Reply air jordan 1
10:39 PM on March 14, 2022 
I would like to express some appreciation to the writer just for rescuing me from this scenario. Right after looking throughout the the net and seeing techniques that were not pleasant, I believed my entire life was over. Being alive devoid of the answers to the difficulties you've sorted out through the article content is a crucial case, as well as those which could have adversely damaged my entire career if I hadn't come across your web blog. Your own personal natural talent and kindness in dealing with the whole lot was precious. I am not sure what I would have done if I hadn't discovered such a step like this. I am able to now look ahead to my future. Thanks a lot very much for your skilled and amazing help. I won't hesitate to recommend the sites to any person who should receive guidelines on this situation.
air jordan 1 http://www.jordan1shoes.us