As part of its regular governance process, the Sacramento County Employees’ Retirement System (SCERS) is conducting its triennial review of the actuarial assumptions used to determine employer and employee contribution rates. We are reaching out to provide information about the preliminary recommendations under consideration and to invite your feedback before the Retirement Board considers any changes.
Why does SCERS review its assumptions?
Every three years, SCERS conducts an Experience Study to compare the assumptions used to fund the retirement system against actual demographic and economic experience. These assumptions—including investment returns, salary growth, retirement patterns, and life expectancy—help determine the contributions needed to ensure promised pension benefits can be paid over the long term.
Updating assumptions is a normal part of prudent pension funding. Rather than responding to short-term market conditions, the process is intended to ensure that contribution rates continue to reflect long-term expectations and the evolving characteristics of the retirement system.
Preliminary Recommendation
At recent Retirement Board meetings, SCERS reviewed preliminary recommendations from its actuary. Among the recommendations is reducing the assumed long-term investment return (also referred to as the discount rate) from 6.75% to 6.50%.
The Retirement Board has not made a decision on this recommendation. The Board will continue its review over the coming weeks and welcomes stakeholder input before taking final action.
Materials from the Board meetings are available here:
What would this mean for contribution rates?
If the investment return assumption is lowered, employer and employee contribution rates would increase because a greater share of future pension costs would be funded through contributions rather than assumed investment earnings.
Any approved assumption changes would become effective with contribution rates beginning July 1, 2027.
Employer contribution increases consist of two components:
- Normal Cost – the estimated cost of pension benefits active employees earn during the current year.
- Unfunded Liability – pension obligations attributable to prior years that are paid down over time.
The portion of any increase attributable to the unfunded liability may be phased in over two or three years to reduce contribution volatility for employers. However, changes to the normal cost must be recognized immediately because they reflect the cost of benefits currently being earned by employees.
It is also important to view these preliminary increases in context. Employer contribution rates have declined over the past four years as SCERS has recognized strong investment performance and continued paying down its unfunded liability. Those favorable trends are expected to continue. If the Retirement Board adopts a lower investment return assumption, much of the resulting increase would be offset by these existing reductions, leading to relatively flat employer contribution rates over the next several years rather than continued decreases.
Employee contribution rates are affected only by changes to the normal cost and therefore cannot be phased in.
Why is the Board considering a lower investment assumption?
SCERS has exceeded its current 6.75% investment return assumption over both the short and long term and is currently approximately 94% funded. Nevertheless, pension funding decisions are made with a decades-long perspective rather than based on recent investment performance.
Several factors support consideration of a lower investment return assumption:
- Independent capital market forecasts generally project lower expected investment returns over the next decade than the strong returns experienced in recent years.
- SCERS has matured as a retirement system. Today, benefit payments exceed contributions received from active members, and this gap is expected to grow over time and will impact the structure of SCERS’ strategic asset allocation, increasing the importance of maintaining sufficient long-term liquidity.
- A slightly lower investment assumption increases the likelihood that investment performance will meet or exceed expectations over time, helping promote stable contribution rates and strengthening the system’s long-term funding position.
Next Steps
The Retirement Board is scheduled to consider assumption changes at its August 19 meeting at 10:00 a.m. at the SCERS office, 980 9th Street, 19th Floor. The meeting will also be streamed via Zoom. Public comment during the meeting will be accepted in person.
Written comments may be submitted to board-comments@scers.gov by August 1 so they can be shared with the Retirement Board before its deliberations.
SCERS will also host a stakeholder briefing via Microsoft Teams at 1:00 p.m. on July 17 to discuss the recommendations and answer questions.
We appreciate your participation in this process and encourage you to review the materials, attend the stakeholder briefing, and provide any feedback you would like the Retirement Board to consider.
Thank you,
Eric Stern
Chief Executive Officer
Preliminary Employer Contribution Rate Impacts beginning July 1, 2027
| Employer Group | Estimated Aggregated Rate Increase |
| County – Miscellaneous Tiers | 2.0% |
| County – Safety Tiers | 4.9% |
| Courts | 2.2% |
| Special Districts | 2.1% |
| SacSewer | 2.6% |
Preliminary Employee Contribution Rate Impacts beginning July 1, 2027
| Retirement Tier | Estimated Rate Increase |
|---|---|
| County Miscellaneous Tier 3 | 0.8% |
| County Miscellaneous Tier 5 | 0.6% |
| County Safety Tier 2 | 1.9% |
| County Safety Tier 4 | 1.1% |
| Courts & Special Districts Miscellaneous Tier 3 | 0.5% |
| Courts & Special Districts Miscellaneous Tier 5 | 0.6% |
| SacSewer Miscellaneous Tier 3 | 0.6% |
| SacSewer Miscellaneous Tier 5 | 0.5% |