The 2020-21 Spending Plan: Pensions

The 2020-21 Spending Plan: Pensions Translate Our Website This Google ™ translation feature provided on the Legislative Analyst's Office (LAO) website is for informational purposes only. The LAO is unable to guarantee the accuracy of this translation and is therefore not liable for any inaccurate information resulting from the translation application tool. Choose your language: × Skip to main content Home --> Policy Areas Capital Outlay, Infrastructure Criminal Justice Economy and Taxes Education Environment and Natural Resources Health and Human Services Local Government State Budget Condition Transportation Other Government Areas Publications The Budget Propositions and Initiatives Staff Careers About Us Search LAO Contact Nick Schroeder CalPERS Angela Short CalSTRS See More Publications Like This Back to the Top --> Tweet October 12, 2020 The 2020-21 Spending Plan Pensions CalPERS Repurposes Prior-Year Supplemental Payment. The 2019 20 budget plan included a $2.5 billion supplemental pension payment to the California Public Employees’ Retirement System (CalPERS) to reduce the state’s long-term unfunded liabilities. This supplemental payment would have resulted in significant state savings over the next few decades—estimated to be $5.9 billion in gross savings over the period. The budget repurposes this supplemental payment to instead supplant state General Fund contributions over multiple years beginning in 2020 21. The budget assumes that this will reduce state costs in the near term by $2.4 billion. This action forgoes the future savings that would have been realized over the next few decades had the payment remained as a supplemental payment. In addition, the Spending Plan reduces future General Fund costs by using Proposition 2 (2014) required debt payments, rather than the General Fund, to pay for a $243 million unfunded liability pension payment for the California Highway Patrol. (This payment was agreed to as part of the most recent memorandum of understanding with Unit 5.) CalSTRS State Contribution Rate Increase Suspended in 2020 21. The California State Teachers’ Retirement System (CalSTRS) Funding Plan, Chapter 47 of 2014 (AB 1469, Bonta), gave the CalSTRS board limited authority to increase the state’s contribution rate to the pension system’s Defined Benefit program by up to 0.5 percent of payroll annually, beginning in 2017 18. The 2020 21 Budget Act suspends this authority and holds the state’s contribution rate flat at the 2019 20 level for the budget year at 10.328 percent (including the state’s required 2.5 percent contribution to CalSTRS’ inflation protection program). Foregoing the rate increase saves the General Fund an estimated $169 million in 2020 21. To make up for the state’s lower contribution rate, the Spending Plan dedicates $297 million of Proposition 2 required debt payments to make a supplemental payment to the state’s share of CalSTRS unfunded liabilities. Pension Payments on Behalf of School and Community College Districts 2019 20 Budget Act Gave Districts Short- and Long-Term Relief. The 2019 20 Budget Act included $850 million in supplanting payments to help school and community college districts pay their required contributions to CalSTRS and the CalPERS School Pool in 2019 20 and 2020 21. In other words, the state made payments to the pension systems on behalf of districts, lessening the amounts that districts were required to pay directly for their annual contributions. In addition, the 2019 20 Budget Act made a $2.3 billion supplemental payment toward districts’ shares of CalSTRS and CalPERS long-term unfunded liabilities. (Of the $2.3 billion, $660 million was intended for the CalPERS School Pool and $1.64 billion was for CalSTRS.) In sum, the 2019 20 Budget Act included $3.15 billion supplanting (short-term relief) and supplemental (long-term relief) payments for districts’ CalSTRS and CalPERS obligations. 2020 Budget Repurposes Supplemental Payments, Converting Them to Supplanting Payments. The 2020 21 Spending Plan repurposes the $2.3 billion supplemental payment to buy down districts’ contribution rates further in 2020 21 and also to lower districts’ rates in 2021 22. Whereas the supplemental CalSTRS and CalPERS payments would have reduced pension costs over the long run (akin to paying principal on a mortgage), repurposing the supplemental payments as rate relief payments does not reduce long-run costs. Instead, these payments provide districts with greater relief in the 2020 21 and 2021 22 fiscal years, with the trade-off of no longer providing districts with long-term relief. Figure 1 lays out this change between the 2019 and 2020 budgets in the state’s plan to use the $3.15 billion for districts. Figure 1 Supplanting and Supplemental Pension Payments on Behalf of Districts Made in 2019 20 Budget Act Repurposed as All Supplanting Payments by 2020 21 Budget Act (In Millions) CalSTRS CalPERS Total 2019 20 Budget 2020 21 Budget 2019 20 Budget 2020 21 Budget 2019 20 Budget 2020 21 Budget Supplanting payment for 2019 20 $356 $356 $144 $144 $500 $500 Supplanting payment for 2020 21 250 1,070 100 430 350 1,500 Supplanting payment for 2021 22 0 820 0 330 0 1,150 Supplemental Payment (estimated to lower districts’ rates for decades) 1,640 0 660 0 2,300 0 Totals $2,246 $2,246 $904 $904 $3,150 $3,150 Notes: Light-shaded cells represent an increase from 2019 to 2020. Darker-shaded cells represent a decrease from 2019 to 2020. 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