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CalPERS : An Unsustainable System

CalPERS : An Unsustainable System. Stephanie Heath | Joe Lapka Clementine Ntshaykolo | Matthew Poland. 10 December 2012. Background:. CalPERS : California Public State Employee Retirement System First established in 1932

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CalPERS : An Unsustainable System

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

  2. Background: • 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.

  3. How has the balance shifted? • 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

  4. How is CalPERS funded? • Employee Contributions • Employer Contributions • Returns on investments made by the state • 74% from 1990-2011 however: • 2001-2002 and 2008-2009 suffered severe losses • 2008-09 alone lost more than $57.3 billion • Net loss of over $46.6 billion in the CalPERSsystem. • Unfunded pension liabilities will continue funded pension liabilities will continue

  5. AB 340 • 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

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

  7. 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

  8. The Problem of an Increasing Benefit Period

  9. The Problem of an Increasing Benefit Period 2000 2010 Change CalPERS member Contributions (billions) $1.8 $3.4 + 89% Employer contributions (billions) $0.4 $7 + 1,650%

  10. AB340 Insufficiently Addresses Problems Posed by the Minimum Retirement Age • 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

  11. The Future of Pension Reform in California • 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.

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