CalPERS Considers Changes Impacting Employer Contributions
November 16, 2017
The California Public Employees’ Retirement System (CalPERS) Board is in the midst of reviewing their investment strategy that could lead to further changes in the discount rate, which has major ramifications for employer contributions. County feedback is needed as CSAC continues to engage with CalPERS over the coming weeks to help inform their decision.
The discount rate is the percentage of expected returns on investments made by CalPERS. A lower discount rate means that employer agencies, including counties, will have to contribute more to the system in order to make up the difference of lower investment returns. Typically, the decision to change the discount rate comes once every four years at the end of the Asset Liability Management (ALM) cycle which is where we are today; however, counties will recall that the CalPERS Board approved a three year phased-in reduction in the discount rate last December from 7.5 percent to 7 percent.
At a public workshop held on Monday, November 13, CalPERS staff presented four investment portfolios with varying discount rates (one which maintains the path to 7% as adopted last December). After the presentation, stakeholders, which included CSAC and employer agencies, had an opportunity to respond with their preferences. The four investment portfolios represent blended (short and long-term combined) expected return levels ranging between 6.5 percent and 7.25 percent, in 0.25 percent increments. For more information, see the workshop slide deck. The event was also recorded and can be viewed here.
The Board also is reviewing changes to the amortization period – the length of time used to pay down pension liability – and will be reviewing options that may shorten the period from 30 years to 20 years. Currently, counties have the option of requesting a shorter amortization period as a way to reduce overall payment substantially, but with higher payments. The CalPERS actuaries have been directed to provide alternative proposals to a mandatory 20-year amortization that will be presented at the December meeting (December 18-20).
As the Board considers these options, CSAC will keep counties informed of any new developments and would greatly appreciate feedback from individual counties on how this decision will affect them. Please send comments to Dorothy Johnson or Tracy Sullivan before December 5.