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CalSTRS cuts estimated rate of return

December 2, 2010 |  5:55 pm

The state's second-largest government pension fund is lowering its expectations.

But only by a little bit.

The $141-billion California State Teachers' Retirement System on Thursday reduced its long-term assumed annual rate of return on investments from 8% to 7.75%. At the same time, the pension fund's governing board cut its assumed annual wage inflation to 4% from 4.25%.

The drop in the actuarial estimated rate of return is based partially on recession-related market declines and concerns that "recent economic events are having an undue impact on perspectives about the long-term economy," CalSTRS said in a press release.

The assumed rate of return is a key element in calculating how much money the pension fund needs to earn to meet future obligations to 848,000 public school educators and their families, CalSTRS said.

Adopting the new rate of return lowers CalSTRS' long-term funding level to 76.5%.

On June 30, 2009, the fund had 78% of the money it needed, down from 87% the previous year. CalSTRS' unfunded liability hit $40.5 billion in 2009, compared with $22.5 billion in 2008.

Investment earnings alone are not enough to meet future obligations, CalSTRS said. As a result, the board is planning to ask the state Legislature next year to approve an increase in the employer retirement contribution rate paid by 1,400 school districts, county offices of education and community college districts.

--Marc Lifsher