The market results over the past few months have improved, but all is still not well at the big institutional investors.  And that includes California’s big pension funds:

Calpers is considering reducing the projected rate of return used by the giant pension fund to make investment decisions. A cut could force cash-strapped governments in California to pay millions more each year to cover their employee pension obligations.

Since 2003, the California Public Employees’ Retirement System has assumed that the value of its stocks, bonds and other holdings would increase by 7.75% a year. But the likelihood of an extended period of modest economic growth world-wide is fueling doubts inside Calpers that the pension fund can continue aiming so high.(Wall St Journal)

In the fiscal year ending last June, CalPERS was down 23%, while last calendar year improved, nudging to a 12% increase. While there are no hard numbers for the actual amount of additional contributions required, this could mean billions of dollars of additional contributions to CalPERS in order to keep the funds economically stable.

Of course, we know where this is ultimately headed. Arnold Schwarzenegger has already suggested that state employees simply need to reduce their pensions and/or go to a privatizing model.  While this might sound good to the general bloke on the street, consider two facts. First, state employees have already received a 15% pay cut in the form of the furlough days.  Second, state jobs pay less than market rate in the first place.

CalPERS needs to do what CalPERS needs to do, the pension fund needs to be stable. But, the ramifications of this action will be felt for a long time, and that fact should be thoroughly considered.