CalPERS recognizing their discount rate is inappropriately high; yet political pressure is used as a counter argument against adopting a fiscally sound rate!
CalPERS is considering small increases in employer and employee rates over decades to reduce the risk of big investment losses, a policy that also would lower an earnings forecast critics say is too optimistic.
The proposal is a response to the “maturing” of a CalPERS system that soon will have more retirees than active workers. From two active workers for each retiree in 2002, the ratio fell to 1.45 to one by 2012 and is expected to be 0.8 to 0.6 to one in the next decades.
As a result, investment losses will trigger bigger California Public Employees Retirement System employer rate increases. It’s a kind of “leveraging” effect as the investment fund becomes increasingly larger than the payroll on which rates are based.
The risk of big investment losses is a threat for other reasons. Funding could drop below 50 percent of the projected assets needed to pay future…
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