CalPERS investment staff on Tuesday presented the first reading of a proposed shift to a Total Portfolio Approach (TPA) that would set a board-approved 75% equity / 25% bond reference portfolio, authorize a single active‑risk limit of 400 basis points and preserve the current 6.8% discount rate. The proposal is a first reading; staff said it will return to the board for a final vote in November and, if adopted, would be implemented beginning July 1, 2026.

Why it matters: staff told trustees the TPA is intended to simplify governance, improve whole‑of‑fund transparency and allow management to allocate risk across the entire funded portfolio rather than by separate asset‑class budgets. Staff said that, by consolidating risk and performance measurement around a single passive reference portfolio, the board and staff would have clearer reporting on the fund’s total risk and on where management’s active decisions depart from a simple, passive benchmark.

Investment staff member Steven Gilmore summarized the change as replacing multiple asset‑class benchmarks with a single reference portfolio and a stated active‑risk budget. “What’s different is that the board would be asked to adopt a somewhat different governance model, which sets the formal total risk for the fund,” Gilmore said. He added the approach would retain the board’s authority over risk governance and continue the standard ALM cadence of a full review every four years with a two‑year check‑in.

Actuarial modeling and tradeoffs: Scott Durandall of the actuarial office presented simulations testing three reference portfolios and the effect on contributions and funded status. The actuarial work simulated more than 5,000 return paths and showed the higher‑risk portfolios produce higher median funded ratios over ten years but also substantially greater year‑to‑year volatility in employer contribution rates. Durandall said the 75/25 reference portfolio, combined with the proposed active risk limit, supported keeping the discount rate at 6.8%; a lower‑risk 70/30 reference portfolio would have pointed to a slightly lower recommended discount rate (6.7%) because of the modeled change in expected long‑term returns.

Staff said the modeling used a mid‑range active‑risk operating assumption of about 300 basis points (within a proposed operating range of roughly 250–350 bps) and an expected return uplift of roughly 60 bps from that active risk. Staff recommended the board approve a 4.00% (400‑bp) aggregate active risk ceiling; staff also said current policy ranges aggregated to roughly 450 bps of potential deviation but they are proposing a lower, single consolidated limit.

Fiduciary and implementation questions: trustees asked about how the TPA would surface correlated risks across former “silos” and how quickly staff could respond to large market shocks without inducing harmful behavioral responses. Director Teresa Willette asked whether the TPA gives “real‑time visibility” into cross‑silo exposures; Gilmore and staff answered that the TPA’s whole‑of‑fund dashboards (already shown in education sessions) would be expanded and that the approach emphasizes scenario testing at the total‑portfolio level. Director Frank Ruffino asked how the trust level risk profile compares to three to five years ago; staff said overall risk is slightly higher than three to four years ago but lower than in 2016, and that equities remain the dominant risk driver.

Timing and next steps: staff said they have created working groups and are preparing implementation workstreams in case the board approves the proposal in November. Staff said the formal implementation target date, if approved by the board, would be July 1, 2026. Staff also committed to continuing the standard ALM reporting and adding dashboards and quarterly disclosures showing reference portfolio performance, active‑risk usage and whole‑fund exposures.

Discussion versus decision: the committee received the first reading and did not vote to adopt the TPA at this meeting; staff requested feedback and will return with final recommendations.

Ending note: the first reading framed the proposal as an evolution of governance and measurement rather than a change to trustees’ oversight authority; actuarial simulations framed the trade‑offs between higher expected returns and larger short‑term contribution volatility.