No matter how bad the economy might be or what the financial markets might be doing, pension funds have insisted that they will make an 8 percent return on their investment. It's a ridiculous promise, given the current market climate, but from their perspective a necessary one. See, if investment returns drop, state and local pension funds would have to rely on government to make up the difference - and politically, that's a tricky prospect. Governments are already reeling from the money they've had to shell out to cover pension obligations. But this week the California State Teachers' Retirement System could break out of the 8 percent box. CalSTRS will consider a staff recommendation to reduce the annual investment return forecast by half a percentage point, to 7.5 percent. That's still crazy high, but at least it's an improvement. From the Sacramento Bee:
CalSTRS is already preparing to ask the Legislature next year for more money to help the fund recover from heavy investment losses. Lowering the investment forecast would increase the amount of money CalSTRS needs from the Legislature by hundreds of millions of dollars - at a time when budgets are tight and public employee pensions are politically unpopular. The issue is so sensitive, in fact, that the CalSTRS board blinked the last time it was scheduled to vote on the forecast. Faced with an identical recommendation from its staff in June, it put off voting. Now the staff and its consultants say it's time for the board to deal with the issue once and for all.