HomeMy WebLinkAboutCalPERs Discount Rate - Letter Recommending NO CHANGECity of San Luis Obispo, Office of the City Council, 990 Palm Street, San Luis Obispo, CA, 93401-3249, 805.781.7114, slocity.org
September 16, 2024
Lisa Middleton
Chair, Finance & Administration Committee
CalPERS Board of Administration
400 Q Street
Sacramento, CA 95812
RE: Finance and Administration Committee: Agenda Item 5a
Dear Chair Middleton,
The City of San Luis Obispo respectfully requests that the CalPERS Board of Administration accept
the CalPERS staff recommendation of making no changes to the discount rate and expected rate of
return since the formal Asset Liability Management (ALM) process will occur in 2025. The ALM
process is an integrated review of CalPERS assets and liabilities done every four years to inform the
CalPERS board of its overall risks, taking into consideration the long-term sustainability of the system.
Based upon the Funding Risk Mitigation Policy (Policy) revised in April 2024, when a Funding Risk
Mitigation Event occurs, an item will be brought to the Board for discussion on whether the discount
rate and expected investment return should be adjusted in accordance with the thresholds noted
within the Policy. The City of San Luis Obispo would first like to thank the Board for making this
adjustment to the Policy. The change in policy to trigger a discussion versus an automatic reduction
allows for additional opportunity for participating agencies and other stakeholders to engage the
Board.
While we are certainly pleased that as of June 30, 2024, the Investment return was 9.3%, we believe
that the discount rate should not be reduced as a result. This return exceeds the discount rate by
2.5% and meets the threshold for triggering a Funding Risk Mitigation Event. Based on the policy, the
Board will discuss whether or not to reduce the discount rate and the expected investment return by
0.05%.
The City of San Luis Obispo opposes lowering the discount rate, as it would increase employer
liabilities and pension contributions, straining the City’s budget. The City is already facing the same
inflationary pressures that other public agencies are experiencing, and with limited opportunities to
increase revenue, a potential increase to pension contributions would place additional strains on the
City’s ability to provide essential services. Higher pension contributions would directly impact the
City’s operating budget, leaving less money for other necessary expenditures such as infrastructure
maintenance, public safety, and employee salaries. If the City were forced to reduce salaries or
implement layoffs, it would hinder recruitment and retention of well-qualified employees, negatively
impacting the City’s ability to deliver critical services to the community.
While the City of San Luis Obispo is opposed to lowering the discount rate, if any adjustments to the
discount rate should be deemed necessary, adjustments made within the context of the ALM process
are more appropriate. Decisions that have the potential to negatively impact participating agencies
financially should be done within the context of a holistic review of CalPERS’ investment portfolios
and retirement plan liabilities.
For these reasons, the City of San Luis Obispo supports the CalPERS staff recommendation of making
no changes to the discount rate and expected rate of return since the formal Asset Liability
Management (ALM) process will occur in 2025.
Sincerely,
Erica A. Stewart
Mayor
City of San Luis Obispo
cc: Members, CalPERS Board of Administration
Marcie Frost, CalPERS Chief Executive Officer
Assemblymember Dawn Addis
Senator John Laird
Dave Mullinex, League of California Cities (via email: dmullinex@calcities.org)
League of California Cities (via email: cityletters@calcities.org)