Taxpayers will pay billions more as CalPERS lowers estimate of investment returns

The board of California’s largest public pension fund approved a plan Wednesday to lower its estimate of future investment returns — a move that will require taxpayers to pay billions of dollars more than expected over the next decades.

For years, the California Public Employees’ Retirement System has estimated it will earn an average of 7.5% or more from its investments. Under the new plan, the pension fund will slowly reduce the rate to 6.5%.

With investment income contributing less to the cost of government worker pensions, taxpayers must pay more.

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The board voted 7-3 Wednesday to approve the plan that will reduce the rate by small increments over the next 20 years.

The pension fund’s staff estimated in May that taxpayer contributions would increase by 6% to 20% over the coming decades, under the plan.

That increase is in addition to recently announced increases of 50% to the rates that CalPERS charges cities and other government agencies.

The fast-rising pension costs already have caused many cities to cut services. Three California cities filed for bankruptcy protection in recent years at least in part because of rising payments to CalPERS.

Experts say that government pension plans across the country have long overestimated how much they will earn on their investments. In turn, that has made government pensions appear less expensive than they actually are.

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