School Employer Contribution Rates for Fiscal Year 2026-27 and Five Year Projection

October 19, 2026
Circular Letter: 200-042-26
Topic: Actuarial

To: All School Employers

Purpose

The purpose of this Circular Letter is to provide updated projections of the employer contribution rate that reflect the 14.8% CalPERS Preliminary Investment Return (without reduction for administrative expenses) for fiscal year (FY) 2025-26. This Circular Letter also provides projected school employer contribution rates under different hypothetical future investment returns known as a “scenario test.”

Employer Contribution Rates

The school employer contribution rate for FY 2026-27 is 26.40% of payroll and is projected to decrease to approximately 26.0% of payroll in FY 2027-28. The actual school employer contribution rate will not be known until audited assets and demographic changes as of June 30, 2026, are measured as part of the next actuarial valuation. The actual FY 2027-28 school employer contribution rate will be presented to the California Public Employees' Retirement System (CalPERS) Board of Administration in April 2027 and may differ from the estimate to follow.

Projected Future Contribution Rates

The following table includes the required employer contribution rate for FY 2026-27 and projected contribution rates for the next five fiscal years. Projected results reflect an investment gain for FY 2025-26 based on the preliminary investment return information released by the CalPERS Investment Office. Further, projected rates reflect the anticipated decrease in normal costs due to new hires entering the Public Employees’ Pension Reform Act (PEPRA) benefit tier.

It’s assumed that all actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur during the projection period.

Projections, by their nature, are not a guarantee of future results. Future contribution requirements may differ, perhaps significantly, from those projected. The actual long-term cost of the plan will depend on the actual benefits and expenses paid and the actual investment experience of the fund.

Actual & Projected Employer Contribution Rates by Fiscal Year

Under the CalPERS amortization policy, changes in the Unfunded Accrued Liability (UAL) due to investment gains or losses (actual return relative to assumed return for a given year) are amortized using a five-year ramp. This method attempts to mitigate employer cost volatility from year to year by phasing in the impact of investment experience over a five-year period. As a result of this methodology, dramatic changes in the required employer contributions in any one year are less likely. However, required contributions can change gradually and significantly over the following five years. In years when there is poor investment return, the relatively small amortization payments during the ramp-up period could result in a funded ratio that is projected to decrease initially, while the contribution impact of the investment loss is phased in. For more information, review the CalPERS Actuarial Amortization Policy (PDF).

Future Investment Return Scenarios

To illustrate the sensitivity of contribution rates to investment returns, an analysis was performed to estimate the effects of various hypothetical future investment returns on required employer contributions. These projections start from the baseline projection in the previous section, modifying only the assumed investment return beginning in FY 2026-27.

The following table includes projected UAL contribution requirements if the fund were to earn either 1.9% or 11.6% annually. These alternate investment returns were chosen because 90% of long-term average returns are expected to fall between them over the 20-year period ending June 30, 2045.

Projected Annual Contribution Requirements Based on Hypothetical Earnings From FY 2026-27 Through FY 2045-46

Required contributions outside of this range are also possible. While it is unlikely that investment returns will average less than 1.9% or greater than 11.6% over a 20-year period, the likelihood that a single year’s investment return will be less than 1.9% or greater than 11.6% in any given year is much higher. The following analysis illustrates the effect of an extreme, single year investment return.

The portfolio has an expected volatility (or standard deviation) of 12.7% per year. Accordingly, in any given year there is a 16.0% probability that the annual return will be −5.9% or less and a 2.5% probability that the annual return will be −18.6% or less. These returns represent one and two standard deviations below the expected return of 6.8%.

The following table includes the effect of a one or two standard deviation investment loss in FY 2026-27 on the FY 2028-29 required contribution. Note that a single-year investment gain or loss impacts the contribution rates for each of the next five years, not just one, due to the five-year ramp in the amortization policy. However, the contribution rates beyond the first year are also impacted by investment returns beyond the first year. Historically, significant downturns in the market are often followed by higher-than-average returns. Such investment gains would offset the impact of these single year negative returns in years beyond FY 2028-29.

Effect of a One or Two Standard Deviation Investment Loss in FY 2026-27 on the FY 2028-29 Required Contribution

Without investment gains (returns higher than 6.8%) in FY 2027-28 or later, projected contribution rates would continue to rise over the following four fiscal years due to the continued phase-in of the impact of the illustrated investment losses.

Questions

If you have questions, call our CalPERS Customer Contact Center at 888 CalPERS (or 888-225-7377888-225-7377).

Scott Terando, Chief Actuary
Actuarial Office