CalPERS headquarters in Sacramento. Jay Mather Sacramento Bee
CalPERS headquarters in Sacramento. Jay Mather Sacramento Bee

Capitol Alert

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Capitol Alert

CalPERS responds to governor, defends investment plan

By Dale Kasler

dkasler@sacbee.com

November 20, 2015 05:18 PM

CalPERS pushed back against Gov. Jerry Brown on Friday, defending an investment strategy the governor had labeled “irresponsible.”

Rob Feckner, CalPERS’ board president, issued a statement saying Brown’s alternative plan “would have caused financial strain on many of California’s local municipalities who are still recovering from the financial crisis.”

After more than a year of studying the issue, the board of the California Public Employees’ Retirement System approved a plan this week that’s designed to gradually reduce its investment risk – and its expected returns as well. The plan is expected to reduce the CalPERS “discount rate,” a forecast of annual returns, to 6.5 percent in 21 years. The rate is currently 7.5 percent.

The board rejected a plan championed by Brown that would have accomplished the same goal in just five years. In response, Brown said CalPERS chose to “expose the fund to an unacceptable level of risk.”

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Feckner, however, said the strategy “is a measured and balanced approach.”

A lower discount rate means safer investments, which generally yield lower profits. That likely will mean CalPERS will impose higher contributions from taxpayers and employees each year. CalPERS took in $8.8 billion in 2014 from government agencies and $3.3 billion from workers, and is already raising contribution rates to reflect longer lifespans for retirees and help the pension fund recover from the 2008 market crash.

This isn’t the first time Brown, a Democrat, has clashed with the CalPERS board, which generally sides with public employees unions. In early 2014, the board was poised to raise contribution rates more slowly than the governor wanted. After Brown called that strategy “unacceptable,” the board went along with his plan.

Dale Kasler: 916-321-1066, @dakasler