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CalPERS Stays the Course, Adopts a 7 Percent Assumed Rate of Return

December 22, 2017
The CalPERS Board of Administration formally adopted investment portfolio Candidate C at its Dec. 20 meeting.
This candidate portfolio has an asset mix that is projected to yield a 30–year blended rate of return of 7 percent (discount rate). The board was presented with four candidate portfolio options each portfolio yielding its own projected rate of return ranging from 6.5 percent to 7.25 percent.

In its recent decision to stay the course, the board specifically attributed its decision to remain at 7 percent to the advocacy efforts made by cities across California. However, it is important to note CalPERS projects a 6.2 percent return over the next decade meaning that cities should expect a significant increase in annual contributions moving forward. Last year, the board pre-emptively adopted a 7 percent discount rate — a reduction from 7.5 percent, anticipating lower than expected returns in the following decade.
The discount rate will be phased in over time. Local agencies will see the first impacts of the discount rate reduction in fiscal year 2018–19 with the full discount rate being phased in by fiscal year 2024–25.
In our continued effort to provide educational resources on pension activities, the League has launched a Retirement System Sustainability webpage to provide city officials with a one-stop-shop for the latest educational tools, information and news articles related to CalPERS and pension obligations. The discount rate reduction information and more can also be found on this page by visiting www.cacities.org/pensions.

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