CalPERS Announces 14.8% Investment Return for FY2026. What Does That Mean for Your Agency?

In today’s update, we are going over the CalPERS’ investment performance for the FYE 06/30/2026 and how you can estimate its impact on your agency’s unfunded pension liability.

CalPERS Investment Performance

On July 13, 2026, the California Public Employees’ Retirement System (CalPERS) announced a preliminary 14.8% investment return for FY 2026. With the third year of strong performance, this is welcome news for many public agencies.

As a reminder, investment performance exceeding CalPERS’ 6.8% target (also known as the discount rate) helps reduce your agency’s unfunded accrued liability (UAL).

The 14.8% investment return for FY 2026 translates into 8.0% of excess earnings over the 6.8% discount rate. This helps lower UAL balances and reduce UAL payments for California public employers. Official impacts will be reflected in the FY 2026 actuarial reports, to be published in summer of 2027.

The 30-year history of CalPERS investment returns is shown in the graph below.

With FY 2026 investment return exceeding the 6.8% target, the pension system’s funded status increased from approximately 79% to 85%. Funded status has not been this high since FYE 2008, just before the Great Recession decimated the pension system.

This performance was driven by strong gains in public equities (24.1%), private equity (17.0%), and private debt (11.0%). Fixed income delivered a solid 5.9% return, while real assets posted a modest 6.3% gain. It should be noted that returns from private equity, private debt, and real assets typically lag by a quarter and remain subject to future adjustments.

What Does This Mean for Your Agency?

To quantify what the 14.8% investment return means for your agency, it is important to understand CalPERS’ funding math.

• For CalPERS to stay on track and avoid significant UAL increases, it needs to average 6.8% in annual investment returns. This target is called the discount rate – the minimum average rate of return that CalPERS needs to achieve in perpetuity so that its member agencies could meet their retirement obligations to employees, retirees, and other beneficiaries.
• Every time that CalPERS misses this target, additional UAL is created.
• However, when investment returns exceed the target (like it did this year), the UAL is reduced.

To estimate the FY 2026 excess return impact on your agency’s UAL, you can multiply the market value of assets within your pension plan by the 8.0% excess earnings. This will be the approximate amount by which the UAL is reduced.

For each $1 million in pension plan assets, roughly $80,000 of existing UAL will be removed from each agency’s account.

The lower UAL balances will first be reflected in the 2026 actuarial reports, which CalPERS will publish in July/August of 2027.

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The FY 2026 performance will result in higher funded status of pension plans, lower UAL balances, and lower future UAL payments, as the effect of the excess earnings will be spread over the next two decades. There should be no change to the Normal Cost contribution rates due to the investment performance.

The impacts of the FY 2026 investment performance are illustrated below:

If CalPERS continues to follow its current amortization practices, the FY 2026 UAL reduction will be phased-in over a 20-year period starting with FY 2029, with a five-year credit ramp-up:

• The 2029 UAL credit will be 20% of the full annual credit amount
• The 2030 UAL credit will be 40% of the full annual credit amount
• The 2031 UAL credit will be 60% of the full annual credit amount
• The 2032 UAL credit will be 80% of the full annual credit amount
• Only in 2033 will the UAL credit be fully phased-in and continue at that level for 15 more years

With three years of strong investment returns and the associated UAL reductions, many agencies are likely to see a shortening of their total UAL amortization period, as the FY 2026 excess return credit is likely to extend beyond the current UAL repayment schedule.

Years with excess returns should be allowed to work in your agency’s favor. Unlike UAL increases, which create negative amortization, unamortized UAL credits create additional investment income for your agency's pension account. Thus, maintaining the ramp-up structure for credits can help maximize long-term benefits.

Discount Rate Policy Update

In November 2025, CalPERS elected to keep its discount rate at 6.8% level. Additionally, the automatic discount rate reductions in years with excess investment returns remain on pause and are subject to the CalPERS Board review.

CalPERS’ average annual returns currently stand at

• 6.8% over the past 5 years
• 8.6% over the past 10 years
• 6.8% over the past 20 years

These results generally support maintaining the current 6.8% discount rate.

Additional Factors

Besides investment-related UAL changes, CalPERS conducts an annual reconciliation comparing the actual plan experience to actuarial assumptions. This analysis will result in additional UAL adjustments for FY 2026, but we will find out about them only in July/August of 2027.

About Ridgeline Municipal Strategies

Ridgeline Municipal Strategies, LLC can help you evaluate the impacts of the FY 2026 investment performance on your pension costs, make sense of the actuarial report format, and implement appropriate pension cost optimization and mitigation strategies.

Want to finally make sense ofyour CalPERS UAL?