CalPERS is often thought of as a trailblazer for other public pensions, which collectively had a 7.5 percent assumed rate of return on their assets as of 2015. The California fund is big, but it pales in comparison to the estimated $3.6 trillion of assets in state and local government retirement systems as of 2015, according to the National Association of State Retirement Administrators.

If all of these funds were to reduce their return assumptions by a mere half percentage point, as CalPERS is doing, it would likely require employees to offset the difference by billions of dollars a year.

As small as the 0.5 percentage point adjustment is, it's still too big for California employees to absorb all at once.

That's why the fund's CFO, Cheryl Eason, proposes starting with a reduction in the assumed rate of return to 7.375 percent in the 2017-18 fiscal year and then lowering it from there. “We believe this schedule would give employers time to plan their budgets and minimize the impact to them as well as to those active members,” Eason said Tuesday at a board meeting in Sacramento, according to Bloomberg's John Gittelsohn.

The California pension fund's decision would require as much as $2 billion in annual state payments by the time of full implementation in 2020, according to a Los Angeles Times article citing a member of Gov. Jerry Brown's budget staff. By the time Calpers gets that assumed rate of return down to 7 percent, as its CFO recommends, the fund may very well be thinking about lowering expectations even further.

For years, pensions have been ratcheting back their forecasts for how much they stood to earn on their assets. They've been delivering underwhelming returns in recent years, even in the face of a tremendous rally in stocks fueled by central bank stimulus.

Since the end of 2008, U.S. stocks have rallied more than 14 percent a year while dollar-denominated bonds delivered about 4 percent annualized returns.

Those same stimulus efforts suppressed bond yields to the lowest levels on record, pushing these pension funds to take more risk to achieve their desired returns. While U.S. bond yields are starting to rise, they're still way below their pre-crisis average.

It's hard to see how they'll shoot up as quickly as some are expecting without more significant economic recoveries in Europe and Japan and stimulative fiscal policies in the U.S.

So pensions are still facing a bleak outlook. U.S. investment returns over the next 20 years are likely to be lower by several percentage points each year than those in the two decades ended in 2014, according to a McKinsey & Co. report earlier this year. There's an estimated $1.9 trillion shortfall in U.S. state and local pension funds.

It's difficult to see how these retirement systems are going to plug the gap with wishful thinking in markets. Sooner or later, workers and taxpayers are going to have to foot the bill and it's going to be unpleasant.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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