So really, how big is it?

Nobody can say for sure.

Pensions are funded from three sources: contributions from the employee, contributions from the government employer, and especially returns on the investment of pension funds. Because pensions rely heavily on those investment returns (they account for 61 cents of every dollar at the state’s main pension fund), no one can predict exactly how much is needed.

The $254 billion statewide pension debt is a projection based on how much money the system assumes it will gain from investments. But actual returns don’t follow a straight line. In the past two decades, California’s two largest systems have hit their target two out of every three years.

Pension funds have slowly lowered their earnings assumption but there’s a debate about what’s reasonable.

As far back as 1994, CalPERS was projecting 8.75 percent from investment returns. Today, it has lowered projections to 7 percent. CalSTRS used to assume 8.5 percent returns in 1994 but it, too, is revising the rate down to 7 percent.

But some pension advisors believe the projections are still overly optimistic. For example, when CalPERS was debating how much to lower its investment return rate, its consultants recommended an assumption of  6.2 percent earnings in the next decade. Stanford University professor Joe Nation, a former Democratic legislator, has also speculated about a “hypothetical” 3.25 percent return, which would create a liability of nearly $1 trillion.*

Labor activists say investment return assumptions are fiscally sound because contributions are invested over the span of a worker’s career.

Currently, the 20-year average return is 6.4 percent at CalPERS and 6.9 percent at CalSTRS. The return is 8.4 percent at CalPERS since 1988 and the 30-year return is 8.7 percent at CalSTRS.*

* This description was modified 4/4/2018