Newport Beach City officials are advocating for policies aimed at increasing long-term sustainability in the state public employee pension fund, CalPERS, as Newport Beach continues to make significant progress in paying down its debt obligations to the system.
On November 16, the CalPERS Board of Administration decided to maintain the fund’s discount rate, or the expected rate of return of the pension fund investments, at the current 6.8 percent. The discount rate had been lowered from 7.0 percent to 6.8 percent in July through CalPERS’ Funding Risk Mitigation Policy, which automatically lowers the discount rate in years when investment returns are above the assumed rate of return. Prior to the recent discount rate change, Newport Beach had asked CalPERS to lower its discount rate to 6.5 percent or below, a more conservative number that could help further reduce future risk.
Newport Beach expects to eliminate its unfunded liability by 2030, thanks to an aggressive payment schedule. Beginning in 2018, the City Council decided to increase annual payments to $35 million a year, $9 million more than required. This fiscal year, for the second year in a row, the City will contribute $5 million more as an additional, discretionary payment, bringing the total contribution to $40 million.
The Road Carriers Local 707 Pension Fund , which was the first plan to seek bailout money under the PBGC Special Financial Assistance (SFA) program for troubled multiemployer plans, has their 425-page application uploaded on the SFA website.
412-425)SFA calculations which is a fairly simple spreadsheet calculating the present value of the liabilities of all current participants (pages 419-420) and coming up with one amount ($706,400,534) to cover all their liabilities through 2051. New entrants presumably will be covered by new negotiated contributions and, after 30 years though if any of the current participants survive until 2051 they will presumably need another bailout.
The problem PBGC has with this filing appears to be that an interest rate of 5.32% was used for valuing liabilities which happens to be 2% plus the first HATFA Segment Rate when it is the third PPA Segment Rate to which the 2% should have been added. Per the IRS website (scroll down a little to Funding Table 3), that rate would likely have been the April, 2021 rate of 3.52% which would have made 5.52% the rate to be used for valuing liabilities (thus lowering the liability value as the higher the interest rate the lower the value). The tricky part is that the PPA third Segment Rate has been going down and is now 3.34% as of October, 2021.
In a move that will make government-employee pensions less risky for taxpayers, N.C. Treasurer Dale Folwell announced Tuesday, Feb. 2, that the assumed rate of return on the main state retirement plan will be lowered.
Folwell and the Retirement Systems Division said the assumed rate of return for investments in the North Carolina Retirement Systems Fund will be reduced from 7% to 6.5%. The move was unanimously approved by the boards representing teachers, state employees and local government employees on Jan. 28.
Lowering the rate requires greater contributions from state and local governments, but keeps debt from piling up in the long term.
The extended period of low interest rates we’re in is not only creating challenges for public pension systems across the nation, but it is also negatively impacting people who are relying on their own savings to fund their retirements.
A common strategy for generating retirement income is to invest savings from an individual retirement account (IRA) or 401(k) into income-producing assets such as corporate bonds. But interest rates on corporate bonds have been falling in recent decades, reaching multi-decade lows in 2020.
The combination of reality and responsible caution is getting expensive for Marin public agencies that provide their workers with generous pensions.
The member agencies in the Marin County Employees’ Retirement Association are getting the latest dose and the association’s board voted to reduce its annual assumption rate on investment returns to 6.75%. It is a quarter of one percent reduction, but one that will cost agencies such as the county and the city of San Rafael thousands of dollars every year.
It recognizes a combination of expected returns on its stock market and real estate investments and that the number of pensioners is not only growing, but they are living longer and drawing more from the fund.
Living longer may be great news for the retirees, but it is an increased cost for MCERA.