CalPERS Stays the Course, Adopts a 7 Percent Assumed Rate of Return
January 4, 2017
A new investment portfolio and corresponding discount rate was adopted by the California Public Employees Retirement System (CalPERS) Board of Administration (Board) that will dictate asset allocation over the next four years. Of the four options under consideration, the Board selected portfolio Candidate C which is most similar to the current portfolio and is expected to earn a 30-year blended rate of return of 7 percent.
As counties will recall, the Board acted December 2016 to gradually lower the discount rate from 7.5 to 7 percent. The decision was in response to financial experts who were signaling a continued low-return environment.
With the recent decision to stay the course, the 7 percent discount rate will follow the same phased rollout as adopted December 2016. As a reminder, the schedule for local agencies is as follows:
- FY 2018-19 7.375%
- FY 2019-20 7.25%
- FY 2020-21 7.0%
Before making its decision, the Board reviewed recommendations from CalPERS staff, external pension and investment consultants, and stakeholders. The unanimous sentiment felt by employer groups, including CSAC, was to the stay on the road towards 7 percent (see CSAC letter on the discount rate decision).
CSAC very much appreciates all of the feedback throughout the process and will continue to keep counties apprised of any new developments that might impact their CalPERS contribution rates. For questions, please don’t hesitate to contact Dorothy Johnson at 916-650-8133 or Tracy Sullivan at 916-650-8124.