CSAC Bulletin Article

CalPERS Estimates Contribution Increase from Lower Discount Rate

January 19, 2017

The California Public Employees’ Retirement System (CalPERS) Actuarial Office has released a circular letter to contracting employers that describes how recent changes to the fund’s discount rate will affect those agencies and member contributions.

Counties will recall that the CalPERS Board of Administration (Board) approved a recommendation to gradually lower the discount rate (the percentage of expected returns on investments made by CalPERS) at its December 21 meeting. A lower discount rate means that − while strengthening the sustainability of the fund – employers will be contributing more to the retirement fund over the next three years. The discount rate in early December was 7.5 percent – as a result of the Board’s action, it will gradually decrease over the next three years to 7.365 percent for fiscal year 2018-19, 7.25 percent for fiscal year 2019-20, and 7.0 percent for fiscal year 2020-21.

The circular letter provides contracting employers with a tool to calculate broad estimates for the increases in employer contributions. The annual valuation report to be released this summer will include updated projections for specific plans.

Estimates of Employer Contribution Increases Following Discount Rate Lowering

(shaded rows are expected increases beyond five year projection in 6/30/15 valuation reports)

   

Normal Cost

UAL Payments

Valuation Date

Fiscal Year Impact

Misc.

Plans

Safety

Plans

Misc.

Plans

Safety Plans

6/30/2016

2018-19

0.25% – 0.75%

0.5% – 1.25%

2% – 3%

2% – 3%

6/30/2017

2019-20

0.5% – 1.5%

1.0% – 2.5%

4% – 6%

4% – 6%

6/30/2018

2020-21

1.0% – 3.0%

2.0% – 5.0%

10% – 15%

10% – 15%

6/30/2019

2021-22

1.0% – 3.0%

2.0% – 5.0%

15% – 20%

15% – 20%

6/30/2020

2022-23

1.0% – 3.0%

2.0% – 5.0%

20% – 25%

20% – 25%

6/30/2021

2023-24

1.0% – 3.0%

2.0% – 5.0%

25% – 30%

25% – 30%

6/30/2022

2024-25

1.0% – 3.0%

2.0% – 5.0%

30% – 40%

30% – 40%

Once finalized, the circular letter can be found here.

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