SACRAMENTO — The state's largest pension plan is scheduled to vote today on a proposal to spread this year's severe investment losses over 30 years and save cash-strapped state and local governments hundreds of millions of dollars initially.
But Gov. Arnold Schwarzenegger opposes the move as a "pass-the-buck-to-our-kids idea."
The California Public Employees' Retirement System, the fund for state and local government workers, has to take action to cover tens of billions in losses from the recession.
Its holdings were valued at $239.2 billion at the start of last July but plummeted nearly 30% by the end of March, a month when key stock market indexes fell to their lowest levels in more than a decade.
The portfolio has since risen to $184 billion with Wall Street's second-quarter spurt, but it is still down 23% from July.
Without action, cities, counties and other public entities would be hit next year with large increases in their annual CalPERS contributions -- jumping from 16.9% of total payroll this July to 24.8% next July.
Under the proposal, called a smoothing policy, the public entities would pay a substantially smaller increase next year -- 19.7% of total payroll. That would rise over the years, though, as annual employer contributions grow, in what are expected to be better times, to make up the difference in the lower payments in earlier years, CalPERS said. The CalPERS proposal is supported by the California State Assn. of Counties and the League of California Cities. The plan "will blunt the impact of increased employer rates that cities and counties will be facing in the coming years," the two groups wrote in a joint letter to the CalPERS board.
Eraina Ortega, a lobbyist for the county group, called smoothing "a prudent thing to do" that would not affect overall fund stability or hit counties with unexpected new costs at a time of "huge budget shortfalls."
Smoothing is not a new tactic at CalPERS. The pension fund instituted such a policy in 2005 as a continuing tactic to protect employers from sharp hikes following the dot-com crash in the technology sector and an economic downturn in the wake of 9/11.
But this year's far worse losses require a separate treatment, CalPERS actuaries argued in a memo to the board. Calling the global market decline a "unique event," the memo said the smoothing plan should be paid outside the existing smoothing process.
