CalPERS Discussion Intensifies re: Discount Rate Employer Contributions
November 17, 2016
The Finance and Administration Committee of the California Public Employee’s Retirement System (CalPERS) met Tuesday to discuss the current discount rate and the potential for lowering it within the next 12 months. The outcome of the hearing? Staff will bring a recommendation to the December meeting. This could have significant impacts for counties that contract with CalPERS for retirement benefits.
The discussion item during this week’s Finance and Administration meeting was informational, and included the reminder that CalPERS has been experiencing lower than expected investment returns recently, a trend that is not expected to change any time soon. Staff highlighted the volatile and uncertain economic climate and also demographic trends of an aging population; both point to potentially needing to lower the discount rate, thus increasing employer contributions.
Counties will recall that CalPERS adopted a risk mitigation strategy to incrementally lower the discount rate in years of good returns, help pay down unfunded liabilities, and provide greater predictability and less volatility in contribution rates. Last month, CalPERS conducted a survey of contracting members to gauge awareness of the ongoing issues with the discount rate, and employers’ potential to absorb increased contribution rates if the discount rate is changed before 2018, when a review of the discount rate is currently slated.
Meeting materials, including the presentation slides from Tuesday’s meeting, are available here. CSAC will keep counties apprised of further developments in this conversation.