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Bonds News

UPDATE 1-Calpers mulls raising rates if it posts loss

(Adds comments, previous NEW YORK)

SAN FRANCISCO, Oct 23 (Reuters) - The largest U.S. public pension fund may need to tap California’s public employers for more money if it does not reverse its steep investment losses of recent months, a fund spokesman said on Thursday.

The California Public Employees’ Retirement System, best known as Calpers, has seen its assets decline by more than 20 percent, or around $50 billion, from the beginning of this fiscal year through Oct. 10 to stand at $190 billion.

If returns do not improve, Calpers may require its employer contributors to increase payments to the fund by an estimated 2 percent to 4 percent of payroll.

Such an increase could take effect in July 2010 for about two-thirds of the fund’s state-employer members, and for the remaining one-third in July 2011.

Any decision on contributor rates will be made after Calpers posts returns for its current fiscal year.

“It would be prudent certainly for them to get ready if the market continues to stay in the dumps,” Calpers spokesman Clark McKinley said.

Some local government officials expect Calpers’ contributor rates will rise because it will post a loss this year, adding costs to already strained local budgets.

Local governments across California are cutting services and freezing payrolls, and some are even considering public safety cuts as the housing crisis and Wall Street’s turmoil reduce their revenues from property and sales taxes.

Sales-tax collections are down as consumers rein in spending and property-tax collections are faltering as the state’s housing slump has worsened.

Meanwhile, local officials fear the state may ask them to help close an estimated $3 billion state budget gap.

Local governments can not spare cash for the state in the near term and at the same time prepare for increased contributions to Calpers, said John Moorlach, chairman of the Orange County, California board of supervisors.

“We’ve been looking at major cuts and having to pay higher pension costs could jeopardize the financial viability of some municipalities,” Moorlach said. “Having the pension plan potentially increase its costs would just be piling on.”

In a Calpers’ statement, chief actuary Ron Seeling said the fund’s double-digit gains in the four years leading up to the 2007-2008 fiscal year will help blunt the impact of the current losses.

“We had saved 14 percent of the fund for cushioning the blow of a future market downturn, and our smoothing policy is working as it should,” he said.

Calpers, which provides retirement and health benefits to 1.6 million active employees, said it had an overall funding ratio of 92 percent, as measured by assets divided by liabilities. But continued declines of 20 percent or more would reduce that ratio.

Calpers is also searching to replace its chief executive and chief investment officers who stepped down earlier this year.

Reporting by Jim Christie, editing by Leslie Gevirtz

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