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SamCERA’s Investment Return Assumption Lowered to 7.0%


SamCERA’s Board of Retirement has instructed its actuary, Milliman, to use 7.0% as the long-term investment return assumption to perform its annual valuation of the retirement fund for the fiscal year ended June 30, 2016. This is a reduction from the previous assumption of 7.25%.

The investment assumption, also called the “assumed earnings rate,” is the long-term annualized average return over a 30-year period that the retirement fund is projected to earn through its investments in stocks, bonds, real estate, and other segments of its portfolio.

Both SamCERA’s actuary and investment consultant do not anticipate SamCERA’s portfolio to earn above 7.0% in the near-term, but on a longer horizon both project exceeding the assumed rate of return.  SamCERA will be the fourth retirement system of the 20 established by California’s County Employees Retirement Law (CERL) to set its assumed rate at 7.0%. 

In the coming years, lowering the rate will add to the financial strength and stability of the retirement fund by mitigating the effects of future returns that are lower than current expectations. 

Lowering the assumed earnings rate to 7.0% will result in an estimated increase in employer contributions of less than 2.3%.

Lowering the rate is also expected to increase member contribution rates. Most increases will be less than one-half of 1%.

The Board of Retirement adopted the new investment return assumption at its June 7, 2016, meeting. The new rate becomes effective with the June 30, 2016, actuarial valuation.