CalPERS to consider further adjustments to the discount rate; cities can offer testimony during CalPERS board meeting

CalPERS’ investment returns for fiscal year 2020-21 triggered an automatic reduction in the discount rate, from 7% to 6.8%. Further changes could significantly impact cities.

On September 13, CalPERS will begin a three-day board meeting where changes to the discount rate, the long-term interest rate used to fund future pension benefits, will be discussed. Further changes — which may be voted on in November — could have significant financial implications for cities.

The CalPERS Investment Committee will be presented an informational item titled Asset Liability Management: Discussion of Candidate Portfolios (Agenda Item 8a). This discussion is a part of the CalPERS’ Asset Liability Management process, an integrated review of its assets and liabilities, with the intent of informing decisions designed to achieve a sustainable fund.

In July, CalPERS announced that their investment returns for fiscal year 2020-21 was 21.3%. This triggered the Funding Risk Mitigation Policy and an automatic reduction in the discount rate, from 7% to 6.8%. The different risk and return choices will be presented in the candidate portfolios to board members next Monday with multiple associated discount rates.

Local officials should be prepared to testify during the Investment Committee meeting about how any change to the discount rate could impact their cities.  

The discussion and feedback on the various risk and return options will be an important consideration when evaluating potential portfolios for adoption by the CalPERS Board at the November 2021 Investment Committee meeting. The full presentation slide deck is available online.

Cal Cities position

The League of California Cities is not in support of a lowering of the discount rate. As the CalPERS Board of Administration considers which candidate portfolio would best suit the needs of the organization and its members, it is crucial that they understand the impacts that increased pension costs have on cities throughout California. City participation in the September meeting will help the CalPERS board understand the city impact their November vote could have.

How to participate

Cities and members of the public can provide testimony by calling (800) 259-4105 on September 13. Those wishing to participate call a few minutes early, enter the queue, and provide their name and organization. The board meeting can be viewed by visiting the CalPERS Board Webcast webpage.

If you are interested in sharing the impact that a further reduction of the discount rate or general increased pension costs would have on your city with the CalPERS board, please provide public comment. Your city’s perspective is valued and essential.  

If you have any questions, please reach out to Legislative Policy Analyst Johnnie Pina.