By CATHY BUSSEWITZ
THE PRESS DEMOCRAT
The board of the nation’s largest public pension fund voted 7-3 Wednesday to leave unchanged its expected investment return rate, which has been set at 7.75 percent since 2004.
The California Public Employees’ Retirement System began reviewing its assumed rate of return about a year ago, after the fund lost about a quarter of its value in the economic downturn. Its chief actuary had recommended reducing the rate of return to 7.5 percent.
The decision was viewed by some as good news to local governments, because if the pension fund reduced expected returns, then cities and schools that rely on CalPERS for their pensions would have to further increase their annual pension payments.
Critics say that investment return assumption is too optimistic and warn that keeping the rate unchanged will push funding problems to future years.
Former North Bay Assemblyman Joe Nation, who has been pushing for a rate of return closer to 6 percent, said CalPERS was under pressure from local governments and unions to keep the rate stable.
“Given the current economic environment, we believe keeping our discount rate unchanged is in the best interest of our members, employers, and taxpayers,” said Rob Feckner, CalPERS board president, in a statement.
The city of Santa Rosa’s pension plans are managed by CalPERS, and this year the city paid $23.5 million in pension costs, a number that’s expected to grow next year.
“I think in the long term it may push the problem down the road, but I think the reason they don’t want to change the discount rate is because this will have a significant impact to the city budgets in the short run,” said Lawrence Chiu, chief financial officer for Santa Rosa.
State Treasurer Bill Lockyer voted against the measure. “The higher you keep it, the greater the chances … that you’re going to take it down the road, and then the shock’s even greater to the government entities, i.e. the taxpayers,” said his spokesman, Tom Dresslar.
CalPERS manages assets worth nearly $228 billion, as of March 11, for 1.6 million current and retired public employees and their families.
The value of its portfolio fell by 5 percent in 2007-08 and nearly 25 percent in 2008-09. In 2009-10, the fund grew by 13 percent.
The California State Teachers’ Retirement System lowered its expected rate of return from 8 to 7.75 percent last year.
“This is no different from going to Vegas and rolling those dice,” Nation said. “In the short term, it makes life easier. In the long term, it makes life much harder, unless you spin that roulette wheel and you win.”