Despite Cost, California Cities on Board With CalPERS’ Reduced Return Target

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CalPERS may soon reduce its assumed rate of return, rolling it back from 7.5 percent to as low as 6.5 percent.

A lower return target means less reliance on investments and more dependency on contributions from participating government entities.

But despite the higher cost, a large majority of California cities support the pension fund’s rate rollback.

From Reuters:

The League of California Cities surveyed its members, which have been struggling to shoulder the burden of growing pension costs. The survey found that many cities prefer a more gradual increase in costs, as opposed to spikes following market downturns, said Bruce Channing, Laguna Hills city manager.

“As employers, more predictability and less spiking of rates from one year to the next is preferable,” said Channing, who is also chair of the league’s city managers pension reform task force.

[…]

The league said 77 percent of those surveyed supported Calpers’ strategy to reduce portfolio risk, even though the move would over time raise pension contributions more than currently planned. Ten percent of respondents opposed the strategy, and the rest were unsure, the survey of 115 cities found.

Opponents of higher contributions included Alameda, a city of nearly 76,000 near San Francisco. Its pension costs for safety workers like police and fire consume 48 cents of every dollar paid in salary and are expected to grow to 65 cents in five years.

“It’s devastating on our bottom line,” said Alameda Interim City Manager Liz Warmerdam. “We have very little input. Whatever they want to do, local governments have to sit here and deal with it. It’s extremely frustrating.”

The CalPERS board will debate the proposal next week.

 

Photo by  Pete Zarria via Flickr CC License

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