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CalPERS cuts assumed returns, but not by much

The financially beleaguered state government and school districts probably will be paying more for their employees’ pensions, starting next summer.

A key committee of the board of the California Public Employees’ Retirement System on Tuesday voted 6 to 2 to cut its benchmark assumed rate of return on its investments to 7.5% from a two-decade-old target of 7.75%.

The change, if approved Wednesday by a majority of the full 13-member board, would cost the state general fund an additional $167 million, boosting the total bill for the 2012-13 fiscal year to approximately $3.7 billion.

School districts would be tapped for an additional $137 million to cover the retirement costs of non-teaching personnel. Cities, counties and special service districts that participate in the CalPERS program would not get higher bills, which have yet to be determined, until July 1, 2014.

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The hit on government employers could have been worse.

Alan Milligan, CalPERS’ chief actuary, recommended that the pension fund’s discount rate, which forecasts assumed rates of return on its $236-billion investment portfolio, be lowered to 7.25%.

The bigger change, Milligan said, “is the best course of action for this fund in the long term.” He predicted that CalPERS had a 54% of reaching the 7.25% goal, but only a 1-in-2 possibility of hitting 7.5% in any given year.

The committee, after hearing testimony from local government officials and public sector labor union representatives, voted to take the more conservative approach.

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“This is a difficult decision, a true rock-and-a-hard-place situation,” said board member George Diehr. “There’s an impact on contribution rates during a period of budget strain for state, public agencies and schools.

“But, continuing to assume something that probably is not realistic is kicking the can down the road.”

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