CalPERS: An Unsustainable System Stephanie Heath | Joe Lapka Clementine Ntshaykolo | Matthew Poland 10 December 2012

CalPERS: California Public State Employee Retirement System – First established in 1932 – 222 state administered defined benefit pension systems in the country – CalPERS is the largest which covers 1.65 million people System allowed for a sufficient balance – Current state employed retirees and future retirees Recently it has become rather difficult for the state to continue to maintain this balance. Background:

People live longer than they did in 1932 Retirement age is lower than when the system was created – State is financially responsible for a longer period of time – Healthcare costs have risen by 60% in the last years – Projected to double in the next 10 How has the balance shifted?

Employee Contributions Employer Contributions Returns on investments made by the state – 74% from however: and suffered severe losses alone lost more than $57.3 billion Net loss of over $46.6 billion in the CalPERS system. Unfunded pension liabilities will continue funded pension liabilities will continue How is CalPERS funded?

Passed in September of this year Addresses the growing gap between employee and employer contributions What else needs to be done? – Cost sharing – Setting minimum retirement age – Managing health care costs for retirees AB 340

Purpose Pension Basics Provide a lifetime source of income beginning at retirement  Ensure that retirees do not outlive their financial resources Age at retirement Age at death Total lifetime benefits Benefit period

The Problem of an Increasing Benefit Period 1932 – California creates the retirement system Retirement age: 65 Average life expectancy: mid-late sixties Now Retirement age: 55 Average life expectancy: 78

The Problem of an Increasing Benefit Period

CalPERS member Contributions (billions) Employer contributions (billions) Change $1.8$ % $0.4$7+ 1,650%

AB340 claims to address the issues posed by the minimum retirement age but it does not – Reforms encourage later retirement – Employees still able to retire at age 52 Other countries directly link retirement age to life expectancy AB340 Insufficiently Addresses Problems Posed by the Minimum Retirement Age

Recent reform is a first step in more changes to come Some changes that would protect the financial health of our state: – Defined benefit to defined contribution plans – Increasing employee contribution rates – Raising retirement age – Changing benefit calculation in the form of adjusting healthcare coverage of retirees to a level that makes more sense. The Future of Pension Reform in California