7.25 > 6.75

July 30, 2026

Nathan Brostrom

Executive Vice President & Chief Financial Officer, UC Finance

Re: Recommendation to Increase the Actuarial Rate of Return for UCRP

Dear CFO Brostrom:

At the July 22, 2026 meeting, the Academic Council unanimously endorsed the recommendation of the University Committee on Faculty Welfare (UCFW) and its Task Force on Investments and Retirement (TFIR) to increase the assumed actuarial rate of return for the University of California Retirement Plan (UCRP) from 6.75% to 7.25%.

Council first reviewed the proposal at our June 2026 meeting, when TFIR presented its analysis of UCRP’s long-term investment performance, funding position, and cash flows. TFIR concluded that the current assumption is unnecessarily conservative and increasing it to 7.25% would better reflect expected long-term returns, reduce unnecessary contribution requirements, and preserve resources for the University’s core mission without reducing pension benefits.

Before taking action, Council asked the University Committee on Planning and Budget (UCPB) to review the proposal. UCPB subsequently endorsed the proposed increase, while emphasizing the importance of adhering to Regents Policy 5601. Council agreed that UC should follow the policy’s established mechanisms for adjusting contributions when investment performance differs from actuarial assumptions and that future funding shortfalls should not be addressed by shifting additional costs to University employees.

Council recognizes that the actuarial rate is a long-term planning assumption rather than a guarantee of future investment performance.

Nevertheless, Council concluded that the evidence presented by TFIR supports the proposed 7.25% rate and that maintaining an unnecessarily conservative assumption carries substantial opportunity costs for UC.

I am forwarding the attached UCFW-TFIR proposal and UCPB endorsement for your consideration as the University reviews the actuarial assumptions governing UCRP Sincerely,

Ahmet Palazoglu

Chair, Academic Council

cc: Academic Council, Chief Investment Officer Bachher, Executive Vice President and Chief Operating Officer Nava, Vice President Henderson, UCFW Chair Bales, TFIR Chair Hollenbach, UCPB Chair Brosnan, Senate Division Executive Directors, Senate Executive Director Lin

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Comment:

The important thing to note is that changing assumptions about the future does not change the future. The actual rate of return that will occur in the future depends on the investment strategy (the mix of assets held by the plan) and future financial market conditions. From the TFIR report:

"Changing the assumed rate of return does not change the actual return on investments; actual returns to the UCRP investment portfolio follow from the asset allocation policy set by The Regents and the returns those assets produce."

Note that the same can be said about liabilities of the plan which depend on policies regarding eligibility that may be enacted by future Regents, changes in life expectancy, changes in hiring and retirement behavior at UC, etc. Making assumptions about such matters in the future does not, by itself, change the actual future course of events.

Basically, being more conservative about assumptions requires more funding to achieve a planned 100% pension funding ratio. Being less conservative requires less funding, but increases the risk of underfunding. Although it is not explicitly stated in the report, in a period in which the funding model for UC is under strain, the attraction of being less conservative - even if it entails more risk - increases.