The Department of the Treasury and the Internal Revenue Service released new guidance that is “designed to expand the use of income annuities in 401(k) plans.”
SACRAMENTO, Calif., May 22 -- The California Public Employees Retirement System issued the following news release:
The California Public Employees' Retirement System (CalPERS) Board of Administration today approved new actuarial policies to contain rate increases for small public agency employers that would have otherwise been an unintended consequence of pension reform.
The Public Employees' Pension Reform Act (PEPRA) closed existing benefit formulas and created new benefit formulas for new employees hired after January 1, 2013. As a result, PEPRA effectively closed the existing pension risk pools, which would have prompted a general contribution increase for employers in those pools. However, CalPERS today acted in anticipation of those undesired increases by making changes to the structure of risk pooling.
The new actuarial policies create significant changes to the risk pooling structures by:
* Combining 12 risk pools into two, one for all miscellaneous plans and one for all safety plans
* Changing the mechanisms of how the employer's unfunded liability is determined and collected, and what portion of their contributions will be used first to pay down these unfunded liability obligations
"These changes will prevent an unintended contribution increase while simultaneously addressing funding, equity and rate volatility issues for smaller employers," said Rob Feckner, President of the CalPERS Board. "We are committed to helping employers reduce their unfunded liabilities and to fully funding our risk pools to support the next generation of California's workforce."
While these changes will avoid a general increase in employer contributions to fund the risk pools, the changes will result in contribution increases for some individual employers and a reduction in contributions for other employers. Employers with a high ratio of retirees to active members are expected to see a relatively modest increase, while employers with fewer retirees are expected to see a relatively modest decrease in contributions.
"By taking action now, we can minimize any additional strain on employers' budgets," said Bill Slaton, Chair of the Finance and Administration Committee. "Through our partnerships with the employer associations, our outreach and engagement with our employers will allow them to better understand and plan for any impact to their agencies."
Changes to the risk pools will also allow employers with additional flexibility to pay down their share of the pools' unfunded liability, a request made by many CalPERS employers.
"It is especially gratifying that we have been able to avoid unnecessary increases while also permitting employers to take charge of paying down their unfunded liability," said Slaton.
CalPERS first implemented risk pools in June 2003 for employers with 100 or less active members. Risk pooling is a type of insurance arrangement for employers that spreads demographic risks, avoids large liability losses and uses a rate smoothing method to protect against large fluctuations in contribution rates caused by service retirements and work related disability and death events.
More than 1,200 contracted employers participate in risk pools that include more than 3,500 pooled plans.
More background is available in the Finance & Administration Committee Agenda Item 5a and 2012 Risk Pooling Review Report.
CalPERS is the largest public pension fund in the U.S., with more than $291 billion in assets. CalPERS administers health and retirement benefits on behalf of 3,090 public school, local agency and State employers. There are nearly 1.7 million members in the CalPERS retirement system and more than 1.3 million members in its health plans. For more information about CalPERS visit, www.calpers.ca.gov.
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