CalPERS could have socked the state for another $425 million. Instead, it chose a compromise measure that's expected to cost $167 million.

A committee of the state's big pension fund moved Tuesday to reduce its official investment forecast by a quarter-point, to 7.5 percent.

The change, if ratified by the full board at its meeting today, would force the state to contribute an additional $303 million a year to CalPERS, with $167 million coming from the general fund.

With the extra money, the total contribution from the general fund to CalPERS would come to nearly $3.7 billion, starting with the new fiscal year in July. Schools and local governments would pay more, too, although the contributions from local agencies wouldn't go up until 2013.

CalPERS' staff wanted to cut the forecast by a half-point, to 7.25 percent. That would have cost the general fund $425 million a year – and might have been political dynamite with the deficit at $9.2 billion and Gov. Jerry Brown pushing to overhaul the pension system.

The less dramatic change, a quarter-point, was deemed acceptable by CalPERS' chief actuary, Alan Milligan. The CalPERS pension and health benefits committee voted 6-2 to recommend that adjustment to the full board.

Forecasting investment profits is hard. Brad Barber, a finance professor at UC Davis, said CalPERS can't predict the future with any precision.

"We don't really know what the expected return is going to be," he said.

Some prominent critics, such as former legislator Joe Nation, have said CalPERS should cut its forecast to around 6 percent.

Nation, now a professor at Stanford University, said going to 7.5 percent is "a step in the right direction." But he added, "At the rate they're going, it'll take five or six years before they get it right."

CalPERS has averaged 8.4 percent returns over the past two decades but earned just 1.1 percent in calendar 2011. With the financial markets volatile and economic growth sluggish, many public pension funds have cut their forecasts, including the teachers' system, CalSTRS.

CalPERS resisted making a cut last year, wary of imposing a greater burden on taxpayers and possibly inviting a political backlash. But Milligan urged the pension fund to revisit the issue, arguing that doing nothing wasn't realistic.

"It's a true 'rock and a hard place' situation," said George Diehr, a member of the CalPERS committee.

An official from Santa Clara County, Peter Ng, urged CalPERS not to change. The adjustment would cost his troubled county about $34 million a year in higher contributions.

"We are just beginning to see the (budget) situation stabilize," Ng said.

School districts, which use CalPERS to cover non-teacher employees, would have to kick in another $137 million a year. CalPERS didn't have an estimate for the impact on cities, counties and other local agencies.

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