Calpers lowers investment rate of return, but not by much

The state's giant pension fund invests billions of dollars each year under the assumption that it will return a certain rate - for two decades it's been 7.75 percent. Such a level, however, is generally considered unrealistic, considering the market meltdown in 2008 and chronically low interest rates. So Calpers has been considering a cut in that assumed investment return. This makes all kinds of sense, except that if Calpers makes less money on its money, the state is on the hook for the balance of what pension recipients are owed. The fund's chief actuary recommended cutting the return to 7.25 percent, but a Calpers committee voted 6-2 this morning to take a smaller slice, to 7.5 percent. In theory, this means the government will be liable for less money, but only if the 7.5 percent return is met - and there's no guarantee that will happen. From the Sacramento Bee:

CalPERS spokesman Brad Pacheco said the fund has earned an average return of 8.4 percent annually over the past two decades. Its return in 2010 was more than 20 percent. But it earned just 1.1 percent in 2011, and critics have said it has been dragging its feet on reducing its forecast. Any change in CalPERS' investment forecast trickles down to the local level as well. School districts, which use CalPERS to cover employees other than teachers, would see their annual contribution grow by $339 million if investment forecast is slashed by the more severe amount. If CalPERS took the gentler approach, and cut the forecast by just a quarter point, the schools' contribution would grow by $137 million. Pacheco said CalPERS hadn't yet calculated the impact on cities, counties and other municipal agencies that belong to the pension fund.

The full Calpers board will consider the reduced investment return on Wednesday.