CalPERS Announces Anemic Investment Returns

Categories: California Developments,Pension Rate Stabilization
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School Services of California, Inc.  by Michelle McKay Underwood and Sheila G. Vickers,  July 18, 2016

Today, July 18, 2016, the California Public Employees’ Retirement System (CalPERS) reported its preliminary return on investments for the 2015-16 fiscal year: 0.61%.

The long-term investment earnings assumption that CalPERS uses for actuarial purposes is 7.5%, and only its investments in fixed income and infrastructure performed better than that assumption—9.29% and 8.98%, respectively. The rest of the CalPERS investment portfolio earned returns ranging from 7.06% (real estate) to -9.56% (forestland), thereby reducing the overall portfolio return to almost zero.

“It’s important to remember that CalPERS is a long-term investor, and our focus is the success and sustainability of our system over multiple generations,” said Henry Jones, Chair of CalPERS Investment Committee. “We will continue to examine the portfolio and our asset allocation, and will use the next Asset Liability Management process, starting in early 2017, to ensure that we are best positioned for the future market climate.”

School and community college employers will feel the impact of this low investment return as the employer contribution rates for 2017-18 and beyond are calculated. The latest estimates as reflected on School Services of California, Inc.’s, Financial Projection Dartboard are as follows:

2016-17 (Actual) 2017-18 (Estimated) 2018-19 (Estimated) 2019-20 (Estimated) 2020-21 (Estimated)
13.888% 15.50%* 17.10%* 18.60%* 19.80%*

*starting with 13.888% rounded to 13.9%

The above estimated employer contribution rates were provided by CalPERS in April 2016, before the low investment return for 2015-16 was known. Schools and community colleges should continue to plan on the above rates, at the very least, in multiyear financial projections until we receive updated rates from CalPERS—likely in April or May 2017.