1. League of California Cities Presentation January 20, 2017
Securing CalPERS Future: Ensuring the Long-Term Sustainability of the Fund
League of California Cities Presentation
January 20, 2017

2. Why A Discount Rate Change Now?
Market conditions have changed
Seeing more uncertainty in the forecast
Next 10 years are consequential
To close the cash flow funding gap
Risks in system continue to grow

3. CalPERS Historical Allocation Assumed Rate of Return and 10yr US Treasury Yield
As you heard Ted discuss briefly at lunch on Monday, this one slide really illustrates how we view the world.
Government Interest rates have been on a 33-year decline
As a result we have had to take on more risk to achieve a similar level of returns
This has left the portfolio and the annual returns more volatile.
Assumed Rate of Return
Data Source: CalPERS Comprehensive Annual Financial Reports (CAFR) for assumed rate of return and allocation
Data Source: Bloomberg for 10YR US Treasury Constant Maturity Rate (H15T10Y)
Inflation asset class was not provided as a separate line item in the 2014 & 2015 CAFRs. Used the asset allocations from the AA-Spreadsheet

4. Change in Market Conditions
7.5%
7.1%
Assumed rate of return

5. Contribution & Benefit Payments

6. Approved Discount Rate Phase-In
Valuation date
FY Required Contribution
Discount Rate
June 30, 2016
7.375%
June 30, 2017
7.25%
June 30, 2018
7.00%

7. Timing of Change to Annual Valuations
Valuation Date
Contribution Rate Change
State and Schools
6/30/16
17/18
Public Agencies
18/19
Affiliate Plans

8. Employer Contribution Increases
Normal Cost
UAL Payments
Valuation Date
FY Impact
Misc. Plans
Safety Plans
6/30/2016
0.25% %
0.5% %
2% - 3%
6/30/2017
0.5% - 1.5%
1.0% - 2.5%
4% - 6%
6/30/2018
1.0% - 3.0%
2.0% - 5.0%
10% - 15%
6/30/2019
15% - 20%
6/30/2020
20% - 25%
6/30/2021
25% - 30%
6/30/2022
30% - 40%

9. Benefits of Reducing the Assumed Rate of Return
Strengthens long-term sustainability of the fund to pay promised benefits
Reduces negative cash flow; additional contributions will help to offset growing pension payments
Reduces the long-term chances of falling below a 50% or 60% funded status that would weaken the sustainability of the fund
Improves our chances of earning our assumed rate of return

10. Next Steps Public Agency valuations distributed in June/July
Begin Asset Liability Management cycle of reviews
Capital market assumptions
Experience study
Asset allocation
Reconsider discount rate in February 2018