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In a memo to the CalPERS board, actuary Alan W. Milligan suggested lowering the assumed annual rate of return to 7.25% from 7.75%, a decade-old benchmark, as the state continues to grapple with the slow recovery from the Great Recession.
Milligan also is recommending that CalPERS, the nation’s biggest public pension fund with a value of $238.4 billion, lower its ongoing inflation assumption to 2.75% from 3%.
The effect of the two changes would raise the state government’s employee pension costs as much as 4.5% in the fiscal year that begins July 1. Some pension costs for public safety agencies could jump as much as 6.6%, according to Milligan’s report to the board.
Last year, the board rejected a more modest Milligan recommendation to lower the assumed rate of return rate to 7.5%. Members at the time were concerned about the financial effect on local governments that were struggling to pay for basic services because of declining tax revenue.
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