AgdaPkt 2009-05-18 - Laserfiche WebLink

Browse Search

SA Page 14 This Is partly due to the rate .smoothing- policy adopted by the CalPERS Board In 2005 that reduces rate volatility by spreading investment gains and losses over 15 years. This prevents employer costs from going up or down dramatically after one or two good or bad years of investment returns. The policy change was made at the behest of contracting employers who wanted greater rate predictability from year to year. The other factor is that there is a two-year lag between Investment performance and the impact on employer rates. Your 2009-10 rates, are based on Investment returns for the fiscal year that ended June 30, 2007, a year in which CalPERS investments gained 19.1 percent, well above our actuarial target rate of 7.75 percent. Our rate smoothing policy will minimize rate increases the following year (201 0-11) even though the CalPERS pension fund suffered a 5.1' percent IOS8 in the year ended June 30. 2008, as the recession began to take hold. In fact, most cities will likely see a rate decrease of less than 0.1 percent based on investment returns alone. However, the demographic experience of your plan may result In a slight net Increase In rates. Rates for 2011-12 are less certain. We will have a better picture of what employer rates will look like after June 30, 2009, when we calculate returns for the full 12 months of this fiscal year. We do know that a loss of 20 percent or more could mean 8 rate Increase of between 2 and 5 percent of payroll, as mentioned In a November 2008 Circular Letter to employers from our Chief Actuary Ron Seeling. We are very mindful of your dilemma and share your concerns. I can promise you that CalPERS is committed to working with local public agency employers to provide you with the tool~ and technical assistance to fully understand how our investment returns will affect your valuations and retirement contributions In the future. Our chief actuary is analyzing options for mitigating the Impact on city budgets. I also want to tell you about the actions we are taking to mitigate the effects of the economic crisis on our Investment portfolio. We are proactively analyzing all asset classes and taking a disciplined Investment strategy going forward. Our Investment staff has taken action to maximize investment opportunities when the economy and financial markets rebound. Our Board widened our asset allocation target ranges for stocks, bonds, real estate, and private equity, which gives us more flexibility to manage our investment portfolio during these unusual times. It means we don't have to sell assets to stay within rigid target allocations that might result in Investment losses. In our real estate portfolio, we have'taken a number of steps to calculate the real value of our holdings, analyze the capital structure, restructure debt. and reduce leverage. We are looking at opportunities to partiCipate In the Troubled Asset Relief Program (T ARP) developed by the federal government to purchase assets and equity from financial Institutions In order to strengthen the financial services sector. And we are ramping up our Inflation-linked asset class to invest in infrastructure, commodities, and energy"related businesses. Of course, market reform is also at the top of our agenda. We recently teamed up with other pension funds representing $900 billion in assets to develop regulatory principles aimed at restoring tNst in global capital markets. In addition, our Board has established a new ad hoc committee to ensure the effectiveness of our risk management architecture and Infrastructure. Finally, It Is important to remember that CalPERS is a long-tenn Investor. OUr investment strategy Is designed to weather periodic financial storms. Over the past 75 years, CalPERS has survived numerous market downturns such as the 1987 stock market c;rash and the recession of 1990. During the 2001 recession, our pension fund lost $50 billion on paper, but we rebounded with a gain of $120 billion over the next four years. While the past year has been trying for cities that contract with us for retirement benefits, I am optimistic that by working together we will emerge in good shape. No one. can predict how long It will take for markets to recover, but we are doing everything possible to ensure that we are 5