Image of Rick Roeder

More Information:

Roeder Financial
4532 Westview Drive, Suite 100
La Mesa, CA 91941-6433

(619) 300-8500

California Pension Systems: Ranking their Funding Assumptions

Roeder Financial       May 2024

This is the fifteenth periodic survey (click here to see survey results in a new window) which ranks the funding assumptions used by California’s public pension systems from “most conservative” to “most optimistic.” In the related spreadsheet, the “most conservative” system is ranked as #1 and “most optimistic” system is ranked as #36.

There is no absolute “right” or “wrong” in setting assumptions. There can be a number of valid reasons that an assumption package for Entity A differs from Entity B. Entity A might have a larger equity allocation than Entity B. Entity C might wish to have more conservative assumptions to be able to fund potential ad hoc benefits. The nation’s largest state plan, CalPERS, may be able to have certain size-related investment efficiencies unavailable to smaller sponsors.

A seeming contradiction has existed during the fifteen-year period in which these surveys have been completed. There has not been even one instance of ANY entity increasing their assumed rate of investment return since 2009 – and almost assuredly longer – despite a significantly higher equity market. This raises two questions: Were assumed investment returns too high 10-20 years ago? Do lowered assumed returns fully reflect the timing and duration of the next bear market?

Nor does traditional actuarial funding address a paradox: other factors equal, more contribution volatility exists for better funded plans than those with lower funded ratios. Actual investment returns can diverge wildly from assumed returns during a market cycle. Higher asset levels mean that the dollar magnitude of potential actuarial gains or losses is also greater.. After the “learning experience” brought about by the 2001-2009 bear market, some Systems established policies which would keep a greater reserve during the “good times” when and if funded ratios again exceed 100%. Other entities, such as CalPERS, have decided that traditional smoothing methods did not achieve desired stability and have used a blunt approach which directly smoothes contribution changes over a period of years – on top of other smoothing methods. Segments of the actuarial community believe that current professional standards, if in place during the 1990’s, might have precluded today’s environment. Perhaps so. Such changes will certainly help but the “political risk” of benefit decisions during the “good” times will remain.

Even though active employees benefit in their retirement years by having well funded systems, making assumptions more conservative can have a “cost” for actives. Lower assumed investment assumptions generally translate into higher employee contributions. In recessions, it is not unusual for plan sponsors to tell Retirement Boards that a lack of pension contribution relief will result in potential layoffs.

Defining some of the characteristics of “most conservative” versus “most optimistic” is useful.

Most Conservative   Most Optimistic

Lower Assumed Investment Return
Higher Assumed Investment Return
Higher Assumed Pay Increases   Lower Assumed Pay Increases
Shorter Amortization periods   Longer Amortization Periods

Explicit Expense Load
No Explicit Expense Load
Entry Age Normal Funding   Projected Unit Credit Funding
Level Dollar Amortization   Level Percent of Pay Amortization

Using comparative funded ratios, to determine how well funded a plan is, can be misleading:

  • Actuarial assumptions will often not be comparable.
  • A relatively high funded ratio could be largely attributable to Pension Obligation Bonds (POB). In looking at the financial viability of a plan, it is essential to look at more than just than the computed actuarial rates if there is also POB debt service.

The most significant development in the 2023 survey is the slowing down of the trend to lower the investment discount assumption as only 3 entities lowered this rate. Number of entities lowering assumed investment return in each survey:

Survey YearReductions
2023 3
2022 9
2021 9

In the past decade the “standard” has decreased by 1+%. In our initial 2009 survey, 60% of the entities used an investment assumption of at least 8%.

“Mean” assumptions for the past six surveys follow:

  2023 2022 2021 2020 2019 2018
Assumed Investment Return 6.77% 6.79% 6.87% 6.96% 7.02 7.10%
Base Wage Inflation 3.02% 3.05% 3.08% 3.19% 3.23% 3.27%
"Excess" Assumed Return 3.75% 3.74% 3.79% 3.77% 3.79% 3.83%

Several points should be noted on the amortization of unfunded liabilities. “Open” or “rolling” methods will use the same number of years in a future valuation as is been used in the current valuation. “Layered” means that there is a new amortization base established each year which is funded on a “closed” or “declining” basis. If one believes that a best practice is for an individual’s benefit to be fully funded at their anticipated retirement date, sound practice is to have the amortization period be closely correlated with the average future working lifetime of the active member group (typically between 11 and 15 years). 30-year amortization passes a significant part of the cost, attributed to current participants, to a future generation of taxpayers. Some entities in the survey still have amortization periods of 20+ years for all or significant elements of their unfunded liability – not a best practice. All amortization approaches noted in this survey should be assumed to be level percent of payroll unless otherwise indicated. Level-percent-of-payroll amortization will produce a lower current year contribution than level-dollar amortization over the same period.

To the extent actuarial losses occur in the future, such losses will become more problematic. This is due to the changing demographics of maturing systems. For most systems, the number of inactive members now exceeds the number of active membership. Spreading losses on a relatively small payroll base means more volatility in contribution rates, other factors equal.


The passage of PEPRA did not immediately stop the increase in contribution rates. However, we expect PEPRA to eventually moderate the sky-high contribution rates of the past decade in conjunction with more modest levels of expected future investment returns. One element of this survey shocked us. Our general sense is that there were more actuarial losses due to actual pay increases exceeding those assumed than in any year since Roeder Financial started this survey. Given the increased level of inflation triggered by COVID relief efforts, significant pay increases were hardly surprising. However, three entities in the survey decreased future pay increases in this survey. Our one-word reaction: WOW.

Recent 5-Year returns have been quite volatile. Compare mean 5-year and 10-year returns:


The source for survey data has largely been from the most recent actuarial valuation report on system web sites. Plan administrators and selected actuaries were sent a draft report to give them the opportunity to make any corrections and updates. The final version will be on the Ramble at Thanks to the many who helped update the survey. If you have any questions, Rick Roeder can be reached at (619) 300 – 8500 or via

Guest authors are welcome to submit articles and their thoughts to the ROEDER RAMBLE for potential viewing on this site.

Copyright © 2009 & beyond by Roeder Financial, all rights reserved.
Site created by Open Sky Web Design using a template design by Nadia