(Bloomberg) — The California Public Employees’ Retirement System, the largest U.S. public pension, will begin phasing in higher contribution rates to account for the increased costs of retirees living longer.
The board of the $282.5 billion fund voted yesterday to boost the state’s annual allocation to $5 billion over three years, from $3.8 billion now. Local government increases were postponed for two years.
The vote represents a partial victory for Gov. Jerry Brown, a 75-year-old Democrat, who urged the board to fully reflect the increased costs of increased longevity in three years. Cash-strapped local governments won a delay to help build a cushion before the higher payments kick in.
“We have to be as aggressive as we possibly can without causing significant fiscal stress for our most challenged participants,” said Christopher McKenzie, executive director of the League of California Cities, who argued for a delay on behalf of municipalities.
Local governments may see costs rise as much as 5 percent of payroll for typical state employees and as much as 9 percent of payroll for those in public-safety jobs, such as police and firefighters, at the end of a five-year phase-in, Calpers said in a statement.
“No one likes to pay more for pensions, but ignoring their true costs for two more years will only burden the system and cost more in the long run,” Brown said Feb. 5 in a letter to Calpers.
By 2028, men who retire at 55 are projected to live 2.1 years longer and women 1.6 years longer, boosting the state’s costs by $1.2 billion a year, or 32 percent, the governor said.