By Dale Kasler
Published: Thursday, May. 27, 2010 – 12:00 am | Page 6B

The state’s teacher pension fund is about to reduce its official forecast of investment returns by half a percentage point, a move that could cost state and local taxpayers hundreds of millions of dollars.

CalSTRS’ staff, which has been wrestling with the issue for months, said Wednesday that the forecast of annual returns should be cut to 7.5 percent. The board of the California State Teachers’ Retirement System will vote on the recommendation next week.

The reduction in CalSTRS’ investment forecast will be crucial in determining how much taxpayers will have to spend to support the $139 billion teachers pension fund. It could heighten the political debate about the affordability of public pensions at a time when Gov. Arnold Schwarzenegger is pushing a plan to reduce benefits for new workers.

Already severely underfunded because of the 2008-09 market crash, CalSTRS has been preparing to ask the Legislature to increase the contributions from the state and local school districts.

A reduced forecast would translate into a 20 percent increase in contributions to CalSTRS, which gets more than $6 billion a year from the state, school districts and its members. But details of the request to the Legislature aren’t yet known.

“We don’t know exactly what it means,” said CalSTRS spokesman Ricardo Duran.

Although CalSTRS won’t go to the Legislature with its request until next year, the prospect of higher contributions will add to the stress facing administrators and lawmakers.

“The school districts don’t have any money. The state is broke, and the employees are taking salary cuts,” said Bob Wells, executive director of the Association of California School Administrators.

But he added, “Keeping the pension system financially healthy is a goal we all share.”

Pension funds alter their investment forecasts rarely. CalSTRS since 1995 has relied on a projection of 8 percent annual returns. But in light of the market crash and the continued volatility on Wall Street, pension funds have begun lowering their forecasts. CalSTRS and CalPERS lost a combined $100 billion in the 2008-09 fiscal year.

The California Public Employees’ Retirement System is also likely to lower its forecast, which is 7.75 percent, but won’t make a decision until February. CalPERS officials had no comment on the proposed new forecast from the teachers fund.

The Schwarzenegger administration, which has been complaining that CalPERS and CalSTRS won’t face up to their financial problems, said investment forecasts should be lowered even more substantially.

To read entire story, click here.