CalPERS Rate of Return Assumption Drops: What About UCRP?

From the Sacramento Bee: Public employees in California will bear the brunt of an investment policy change the CalPERS board made Monday, contributing more toward their pensions while their employers enjoy a short-term reprieve thanks to last year’s stock market boom. 

The vote by the California Public Employees’ Retirement System Board of Administration concluded a once-every-four-years review of the pension fund’s assets, which were recently valued at $495 billion. The approved changes, including added flexibility to borrow money, are aimed at adapting the fund to a shifting financial landscape in which stock market expectations decline and traditionally “safe” investments such as treasuries and bonds no longer earn nearly enough money to keep up with increasing pension costs. The board adopted an annual investment return target of 6.8%, two-tenths of a percentage point lower than last year’s 7% target...

Full story at https://amp.sacbee.com/news/politics-government/the-state-worker/article255854026.html.

Will the Regents feel pressure also to lower their expected rate of return for their pension system - UCRP? It's unlikely at this time. First, the Regents have already lowered their rate to 6.75%, i.e., slightly below the new CalPERS assumption. Second, on a market basis, recent strong returns in financial markets pushed the UCRP funding ratio into the 90% range. So, although the recent strong results will not go on forever, there is no immediate pressure on the Regents.