Strategies to Manage Increasing Pension Costs

 In California, increasing pension costs are already starting to crowd out any discretionary spending for many cities. Recent news from the California Public Employees’ Retirement System (CalPERS) offers little hope for relief for agencies that contract with CalPERS. Changes in the actuarial assumptions used by CalPERS in the past few years will lead to even higher employer rates over the next few years. One significant change is the reduction in CalPERS’ “discount rate” (the assumed investment rate of return) from 7.5 percent to 7 percent, meaning that to pay for a defined benefit, employers must contribute more to the fund. Other changes are having similar impacts.