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Lower returns to raise CalSTRS' unfunded liability
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SACRAMENTO  (AP) — California's teacher retirement system should lower expectations on its investment earnings in a move that could increase the unfunded liability for the nation's second largest pension fund by nearly $6 billion and require taxpayers to chip in more, according to a consultant's report submitted ahead of the pension board's meeting Thursday.

The California State Teachers' Retirement System already had an unfunded liability of $56 billion as of June 2010.

The suggestions come at a time when public pension systems have come under scrutiny for their generous benefits and unsustainable liabilities for state and local governments. Gov. Jerry Brown, a Democrat, has presented a pension-reform plan that is now before the Democratic-controlled Legislature and has urged lawmakers to address the problems this year.

"Whenever we transmit the valuation and submit our financial statement, the cover letter that goes to the Legislature is, 'You got to do something about this,'" CalSTRS' deputy chief executive officer, Ed Derman, said Tuesday during a conference call with reporters. "We're here to help you figure out how to do it, but you've got to solve the problem. The sooner you solve the problem, the less costly."

Unlike the larger California Public Employees Retirement System, the teachers pension fund needs legislative approval to get a greater contribution from the state's general fund.

Derman said the consultant's report is part of the board's periodic review to estimate how much teachers will pay into the system and how much they will take out when they retire.

The board is being advised to lower the fund's assumed annual investment return from 7.75 percent to 7.5 percent, which would increase the pension's unfunded liability by $5.9 billion. That would mark the second rate-of-return adjustment in two years.

The board lowered the fund's previous assumption of an 8 percent annualized investment return in 2010.

The consultant's report also suggests the fund adjust for longer lifespans and smaller pay raises for the state's teachers.

CalSTRS manages a $130 billion pension for about 440,000 teachers and 167,000 retirees. Its value is down from a peak of $172 billion in 2007.