Board of Trustees Continues Its Efforts to Ensure Basic Plan’s Financial Strength by Adjusting the Target Rate of Return for Basic Plan Investments from 7.15% to 6.9%, Effective January 1, 2022

Over the past decade, the Board of Trustees has continued to make changes to the Basic Plan to help ensure its ability to pay promised benefits now and in the future. These changes include allocating the Employer Pension contribution rate increases from 5.5% to 8.5% negotiated by the Bargaining Parties to the Basic Plan and incrementally reducing the Plan’s target rate of return on investments from 7.5% to 7.15%.

Beginning January 1, 2022, the Board of Trustees will again lower the Basic Plan’s target rate-of-return on investments from 7.15% to 6.9%.

Why is reducing the target rate of return important?

It is important to have a target rate of return on investments that the Finance Committee of the Board of Trustees and our advisors, including our actuary and investment consultants, believe is realistic to achieve so the Basic Plan can pay the promised benefits. A higher target rate of return can make the Plan’s funding status appear stronger because it reduces the Plan’s benefit liabilities. However, if that return on investments is not actually achieved, the Basic Plan may not be able to pay those benefits. This is why the Board has continued to make incremental changes to the target rate of return as future economic expectations change and when conditions allow.

In short, a reduced target rate of return is more conservative and in line with expectations regarding long-term investment returns given today’s financial and economic climate. It also best preserves the long-term health and viability of the Basic Plan.

For more information, contact the Pension Department at pension@dgaplans.org or (323) 866-2200, Ext. 404.