Large investment losses in 2009 will hike CalPERS rates,
consultant John Bartel told the City Council on Tuesday, but he
encouraged the city to boost its contributions to the state pension
plan even more, to avoid putting off those liabilities.
He also said the city, which now pays both employer and employee
shares of pension contributions, should consider requiring
employees to pay their own share of the payments in order to create
immediate savings to pension costs.
The pension system employs "smoothed rates" that spread gains
and losses across 15-year periods to avoid sharp fluctuations, said
Bartel, president of Bartel Associates LLC, an independent CalPERS
consultant to public agencies, adding that most public agencies he
works with welcome that approach.
However, he said, that leaves agencies open to steeper rate
hikes in the long run.
"You are pushing off paying that difference down the road," he
said. "That falls into the category of kicking the can down the
For instance, he said, rates for safety employees ---- including
the city's firefighters ---- are likely to rise from 24.3 percent
of salaries for this fiscal year to 29.2 percent next year, while
rates for non-safety employees are projected to grow from 21
percent to 25 percent.
However, that sudden jump is mostly due to changes in CalPERS
assumptions about how long pension recipients will live, and how
many would enter retirement in recent years, while the large
investment losses are only a small portion of that cost, Bartel
To cover those liabilities, he said, cities such as San Marcos
should consider paying a higher rate of 28 percent for non-safety
employees, saying that contributing only the required rate of 25
percent is similar to making the minimum payment on a credit
"I think that CalPERS is giving you an artificially low number,"
He also said that although the city should consider adopting a
second tier of more modest pension benefits for new employees, such
a plan would offer minimal short-term savings of only about 1.2
percent to 4.7 percent of payroll for those employees.
"You ain't going to solve a budget deficit by putting in a
second tier," he said.
To make appreciable cuts in pension costs, he said, the council
should ask employees to pay their own contributions, which would
yield savings of 10.5 to 12.7 percent for new employees and 10.6
percent for existing employees.