The chief investment officer of the $303 billion California Public Employees' Retirement System (Calpers) just recommended that it lower its annual assumed rate of return to 7 percent from 7.5 percent, which will require workers to contribute more money to the plan.

This is a good sign because it finally shows some grasp of reality. Unfortunately it points to a substantial amount of pain ahead for workers, who will inevitably have to pay more into their pensions in the very near future. And that pain could be even worse because expectation of a 7 percent annualized return is still too high. 

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 US$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.