CalPERS 2024 Investment Return & 2023 Valuation Insights"
Official Preliminary 2024 Year End Investment Return Estimate
The “Official Preliminary Investment Return” for fiscal year end June 30, 2024, was announced on July 15, 2024, as 9.3% (9.2% net of the .1% admin fee). This represents a 2.4% experience gain over the CalPERS discount rate assumption of 6.8%. For most plans, the 2.4% preliminary experience gain will provide some welcome relief during the peak years of UAL payment schedule (e.g., FYs 28-29 through 36-37) but will not significantly change the trajectory of the UAL payment schedule between FYs 23-24 and 28-29. A historical trend illustrating the difference between the “Preliminary Investment Return,” and the “Final Adjusted Return,” are depicted below:
Most plans will still have to grapple with the steep ascent associated with FYE’s 2022 Investment loss of -7.5% (i.e., a 14.4% experience loss). This point is better illustrated if we were to change the chart's Y axis to the average expected return of 6.8% as we did below:
We can more clearly see why the 2022 losses not only erased the gains realized in 2022 but are also far more significant relative to the 2024 preliminary return of 9.3%.
2024 Non-Investment Gain/Loss
The “Non-Investment” Gain/loss for 2024 is not yet known but will largely depend on the extent of local agency COLAs or other payroll growth above CalPERS’ assumed payroll growth assumption of 2.8%. CalPERS has already identified the PEPRA compensation limit for 2024 which was increased from $175,250 to $181,734 (for Non-Social Security Participants) which amounted to an approximate 3.7% increase as is illustrated below:
For a more in-depth conversation about the 2024 investment returns, what the two-year impact will likely have on local agencies’ funded status, UAL contribution schedules and normal cost rates, please sign up for our 2024 CalPERS Investment Return Webinar on August 7th at 10:00 AM. Register HERE.
Forthcoming 2023 CalPERS Actuarial Valuations Insights and Reminders
2023 Investment Gain/Loss
What you should expect in the forthcoming 2023 CalPERS actuarial valuations (expected Aug. 2024), is the “Final Adjusted” investment return for 6/30/23 is 6.1% (6.0% net of CalPERS’ .1% admin fee). Therefore, the investment experience loss was .8%. Please note that CalPERS has historically reported the “Official Preliminary return” in the actuarial valuation (5.8% for 2023) which does NOT include final adjustments related to private equity and GASB 67. However, the final adjustments are reflected in the market value of assets (MVA) reported in your 2023 valuations.
2023 Non-Investment Gain/Loss
On the liability side of the equation, the story is a bit more complicated. Statewide inflationary pressures will likely create an outsized “Non-Investment Loss” meaning that your accrued liability likely grew faster than it was expected. Statewide, inflationary pressures combined with a tight labor market resulted in greater pensionable payroll growth than the current CalPERS assumption of 2.8%. The increases fell in three main categories:
Pooled Plans: For “Risk-Sharing” Plans, the answer is straightforward. No matter what your actual agency COLA experience was in 22-23, expect to realize a non-investment loss from the pool that is approximately 1.55% of your plan’s total Accrued Liability for Miscellaneous plans and 1.32% for Safety Plans.
PEPRA Contribution Rates
Note that the increase in PEPRA compensation limits will not only increase your agency’s UAL it may also lead to an increase in your agency’s normal cost (NC) rates. As required by PEPRA legislation, if the NC increase is at least 1%, PEPRA employees may realize an increase to the employee share of NC due to the mandatory 50% sharing requirement.
Consider apprising your Human Resource department after you receive your 2023 actuarial valuation and can validate whether your agency’s PEPRA contribution rates are changing. An example of what you might find in your 2023 valuation is represented below:
For questions regarding any of these details, please contact the GovInvest Customer Sucess Management Team via email: CSMTeam@govinvest.com.
