CalPERS actuarial study recommends raising inflation assumption to 2.5% and keeps 6.8% discount rate; some PEPRA plans may face member‑rate changes
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Summary
Actuarial staff presented the 2025 experience study with recommendations to raise the long‑term inflation assumption from 2.3% to 2.5%, update salary‑scale and mortality assumptions, and retain the 6.8% discount rate; the changes could trigger PEPRA employee contribution adjustments for a limited number of plans.
CalPERS actuarial staff presented an experience study to the Finance and Administration Committee outlining recommended assumption updates that would shape future valuations. The study recommended increasing the long‑term inflation assumption from 2.3% to 2.5%, adjusting salary‑scale assumptions for several plan groups, making modest mortality adjustments (including updates to improvement scales) and leaving the long‑term discount rate at 6.8% following the investment committee discussion.
Staff said pandemic years were excluded from assumption setting because experience during that period was anomalous and did not provide a reliable guide for long‑term expectations. The study showed that higher long‑term inflation was the largest cost driver and that implementing the recommended assumption changes would modestly increase employer contribution rates in many plans.
PEPRA and member impacts: Actuarial staff explained that changes to total normal cost for PEPRA plans can trigger changes to PEPRA member contribution rates when the base total normal cost shifts by 1% or more. Staff provided a plan‑level analysis and estimated that a limited number of plans would likely see a PEPRA employee contribution rate increase, some would be unaffected, and a small number could see a rate decrease. Staff said they would return in November for a second reading and an action item seeking formal adoption of the assumptions.
Why it matters: Actuarial assumptions drive long‑term contribution projections, funded ratios and member costs. Raising the inflation assumption increases projected salary‑scale growth and overall costs and therefore has measurable — though modest — effects on employer and, in some cases, member contribution rates.
Next steps: The actuarial office will present a second reading and an action item to adopt the recommended assumptions at the November meeting; staff and public affairs will coordinate communications and tools so employers and members can model impacts if the assumptions are adopted.