Does Calpers cut cord?

In normal times, as in before the world’s financial roof collapsed, returning 7.75 percent on an investment portfolio was considered ambitious but doable, especially if the investor was an institutional giant like Calpers. But some experts are telling California's pension fund to forget about the 7.75 percent. In the new normal, securing such a return – and doing it safely - might be too challenging. Instead, the board has been urged to cut the promised return to 6 percent or lower. It's a good idea, but the higher rate has been used to determine future contributions from employees and local governments - money that's needed to cover the payouts that have been promised to state retirees. If they go with a lower rate, somebody has to make up the difference. From the WSJ:

"Paying more into Calpers could deepen the financial misery facing many California governments. Some likely would increase taxes or cut services. For the pension fund, lower investment-return expectations could reduce the temptation to seek outsize profits through real-estate, private-equity and other nontraditional investments that wound up burning Calpers with big losses."

In case you're wondering, the 7.75 percent rate of return is no higher than many other public pensions. Actually, a survey by Pew Center on the States says the most common projected return is 8 percent. But that doesn't take into account the losses that pension funds have suffered during the recession.