Frequently Asked Questions About Asset Liability Management (ALM)

At the November 2025 board meeting, the CalPERS Board of Administration approved two major items – a new investment governance model called the total portfolio approach and updated actuarial assumptions based on recent demographic and economic trends as a part of the asset liability management (ALM) process.

The goal of the ALM process is to balance the expected cost of future pension payments with the expected future investment returns. During the process, the CalPERS Board reviews its overall risks, taking into consideration the long-term sustainability of the system. These decisions conclude a nearly yearlong comprehensive review of the pension system’s investment portfolio and actuarial liabilities that the board conducts every four years.

The TPA is an investment governance model to give CalPERS more flexibility to capitalize on a variety of market opportunities across asset classes with the goal of boosting earnings for the pension fund. Under TPA, the focus will be on which investments can best contribute to the performance of the entire CalPERS portfolio, as opposed to achieving individual asset allocation targets. TPA will take effect on July 1, 2026.

CalPERS regularly reviews and updates its actuarial assumptions to ensure employer contribution rates and member benefits are based on realistic expectations. These assumptions cover both economic and demographic factors:

• Economic factors include the assumed rate of return on investments, expected salary growth, and inflation trends. These influence how much money the pension fund is projected to earn and how quickly payroll costs may rise.
• Demographic factors include retirement patterns, termination of employment, mortality rates (life expectancy), and beneficiary considerations. These help project when members are likely to retire, how long benefits will be paid, and the impact of survivor benefits.

Together, these assumptions are used in the annual actuarial valuation to set employer contribution requirements and in member calculations such as service credit purchases or retirement payment options.

In the most recent 2025 review, CalPERS updated several demographic assumptions, reflecting slightly longer life expectancies for retirees and beneficiaries and higher-than-expected salary increases due to inflation. These changes ensure that the plan’s funding projections remain accurate and sustainable over time.

No, the board maintained the discount rate at 6.8% and didn’t make any changes. The discount rate is the long-term interest rate used to fund future pension benefits and is a key component of the ALM cycle CalPERS uses to balance assets with future pension obligations. It’s also referred to as the assumed rate of return, as it represents what CalPERS expects its investments to earn each fiscal year.

The new actuarial assumption cost changes will result in modest adjustments to contribution rates for most employers. For most public agency miscellaneous plans, the increase will be less than 1% of payroll. Safety plans will experience slightly higher increases, with most remaining under 3% of payroll. State and school plans are expected to see contribution rate increases of less than 2% of payroll. These changes reflect updated expectations for future inflation and anticipated salary growth.

Each plan is unique and will vary across plans within public agencies, school districts, and for the State of California. It depends upon the employer’s normal cost, the benefit structure, and the unfunded liability.

For public agencies, the new contribution rates will take effect in fiscal year 2027-28, while state and school plans will find changes beginning in fiscal year 2026-27. These updates will be reflected in the June 30, 2025, public agency valuations, which will be available in August 2026. The valuations will include updated projections for each specific plan. At the end of December 2025, employers can use the Pension Outlook tool to run estimates that incorporate the updated actuarial assumptions.

For most active members, these actuarial changes will not affect retirement benefits.

However, if you retired or re-retire with a service, disability, or industrial disability retirement on or after November 20, 2025, these changes will impact you. If you chose a retirement option that provides for a spouse or beneficiary and if your employer offers a 3%–5% cost-of-living adjustment, then you may see a slight reduction in benefits.

Members who retired on or after November 20, 2025, and selected the unmodified retirement benefit will not see any change in their retirement benefits.

For classic members there are no changes since the contribution rates are set by statute.

For PEPRA members (employees hired on or after January 1, 2013, under the Public Employees’ Pension Reform Act) the actuarial assumption changes will increase member contribution rates beginning with the July 2027 paycheck. About 60% of public agency safety members will see an increase, while most public agency miscellaneous members will not experience any changes.

No changes are expected to state or school PEPRA member rates, with the exception for the state peace officer and firefighter members under the 2.7% at 57 benefit formula. Check with your bargaining unit for updates.

This change will only affect service credit purchase cost requests submitted on or after November 20, 2025.

Some service credit purchase selections will be affected and the cost to purchase will increase. Specifically, the impacted present value service credit types include:

• Leave of Absence
• Military
• Alternate Retirement Program (ARP)
• Peace Corps, AmeriCorps, AmeriCorps VISTA (Volunteers in Service to America)
• Fellowship
• National Guard
• Comprehensive Employment & Training Act (CETA)

These changes do not apply to all service credit purchase types. You can log in to your myCalPERS account and request a service credit purchase estimate to see what you may be eligible to purchase and the potential cost.

ALM is Asset Liability Management, also known as the ALM process. CalPERS' ALM Policy (PDF) was put into place by our board to strengthen the long-term pension fund sustainability. It runs on a four-year cycle with a mid-cycle review after two years. The full review will take place throughout this year.

The goal is to select an investment policy portfolio designed to meet our long-term investment objectives, balancing the need to minimize the expected cost of future pension payments against the risks needed to support expected returns.

As part of the ALM process, the Investment Office presents to the CalPERS Investment Committee several portfolios that detail the level of risk, volatility, and expected returns based on potential investment allocations to each asset class. The Actuarial Office presents the experience study, which projects our future pension liabilities.

During the process, our board reviews its overall risks, taking into consideration the long-term sustainability of the System. The board will decide:

• Risk Appetite: Some investments, public equities, or stocks, for example, are more risky than other investments, such as bonds. Generally speaking, investors taking more risk expect to be rewarded with higher returns.
• Asset Allocation: The percentage of the portfolio that is allocated to each asset class. Our asset classes include public equity, fixed income, real assets, and private equity.
• Discount Rate: The interest rate used in calculating the cost for employers, as well as contributions for employees. It also represents the long-term assumed rate of return on investments based on the asset allocation mix decided by the board.

• Capital Market Assumptions (CMA)
• Contributions
• Experience Study
• Discount Rate
• Risk Appetite

Capital Market Assumptions provide estimates of returns and risk by asset class. This helps the board estimate total investment returns over 10-year, 20-year and 30-year periods.

This year’s analysis will incorporate a range of CMA projections provided by both external managers and our Investment Office. Though a single CMA projection will be used to set the discount rate, considering a range helps us better understand the range of outcomes that can occur if the future is different than the chosen CMAs.

Our Actuarial Office is responsible for providing the board with the Experience Study. This study looks at past data and calculates member deaths, retirements, and other factors over a specific period. It then takes this information and runs models to project future pension obligations.

The discount rate is the long-term interest rate used to fund future pension benefits. It’s one of the key components of the ALM cycle that CalPERS uses to balance assets with future pension obligations. The discount rate is also known as the assumed rate of return because it’s what CalPERS expects its investments to earn during the fiscal year.

The normal cost rate is determined by looking at the annual cost of providing benefits to active employees for the upcoming fiscal year. The normal cost should be viewed as the long-term contribution rate.

The UAL is determined by looking at the Market Value of Assets of the plan or pool and comparing it with the accrued liability of that plan or pool. To the extent that the assets are different from the liability, the plan or pool will also be assessed an unfunded liability payment. The purpose of the unfunded liability payment is to get the assets and liabilities back to even over time.

The total employer contribution is the sum of the normal cost rate applied to an employer's reported payroll plus the UAL payment. These two components are the required contribution amount that employers pay CalPERS to fund their employees’ pension benefits.

The ALM process includes setting the discount rate, or the assumed rate of return for investments. The discount rate is used in calculating how much members and employers contribute to their pension.

A lower discount rate could mean higher contributions. It also means less variability year to year. The opposite is true for higher discount rates.

Yes. The ALM process is conducted in public during board meetings, and members of the public are invited to comment at that time. A schedule of CalPERS' board meetings is posted to our website.

We're a long-term investor. While our Investment Office continually monitors the financial markets and the economic climate, the asset allocation isn't changed outside of the ALM process. The investment team may prudently change certain investments over the course of a year depending on the markets. However, unless directed by the board, they do not take money from one asset class and move it to another. This sort of dramatic shift would undermine return earnings.