Get real, dude

14 March 2012 By Agnes T. Crane

The $233 bln California pension fund finally cut its long-term return assumption by 0.25 percentage point to 7.5 pct – the first move in 10 years. The figure should probably be lower still, but even that tweak opens a $303 mln annual gap that the Golden State has to plug.

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The board of the California Public Employees’ Retirement System (Calpers) on March 14 lowered the investment return assumption it uses to ensure that its $233 billion in assets will be enough to meet its long-term retirement liabilities. The assumed return is now 7.5 percent, down from the 7.75 percent rate used for the past decade.

The change means the state will have to contribute an additional $303 million a year.

In the 10 years to Oct. 31, 2011, Calpers’ total return on its investments averaged 5.7 percent a year, a figure largely calculated before deducting fees - although since the end of September, 2011, Calpers has quoted returns net of fees.

California’s general fund collected $50.6 billion in revenue between July 1 and Feb. 2012, $840 million short of budget projections, according to the state’s controller. The state faces an $8.4 billion shortfall for the next fiscal year that begins on July 1, according to the Center on Budget and Policy Priorities.

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The change means the state will have to contribute an additional $303 million a year.

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