CalPERS was told Monday to expect lower investment returns over the next 10 years, a development that could put more pressure on taxpayers and workers to increase contributions to the pension fund.

A host of consultants and CalPERS staff members said the fund will probably earn less than 7.75 percent a year - the forecast it has been using since 2003.

CalPERS' investment committee, grappling with possible changes in its forecast, was given a host of projections Monday ranging from 7.03 percent to 7.7 percent.

Consultants said returns are expected to fall as markets become increasingly volatile.

Debating future investment performance is hardly an academic exercise. Because the $205 billion fund depends on investment returns to generate three-fourths of its income, a change of even a fraction of a percent can affect contribution rates by millions of dollars. The fund changes its forecast rarely.

As it is, CalPERS already is expected to impose a $600 million rate increase on the state to help make up for the huge investment losses it incurred in 2008. The pension fund's board is expected to finalize that decision Wednesday. The increase would bring the state's annual contribution to $3.9 billion for the fiscal year that starts July 1.

Lowering the expected rate of return could translate into additional rate hikes.

CalPERS officials and their consultants acknowledged that forecasting future returns is dicey.

"The future is uncertain and no one really knows what the outcome will be," said Farouki Majeed, CalPERS senior investment officer. "Yet we have to make good judgments."

Even CalPERS' own staff is split on what future returns will look like. One team has come up with a forecast of 7.13 percent; another settled on 7.61 percent. The CalPERS board will vote on the official forecast next February.

"No one is going to be right. Our goal is to be as close as we can," said Michael Schlachter of longtime CalPERS consultant Wilshire Associates. "It's probably a 50-50 split between art and science."

But he and others said the California Public Employees' Retirement System has little choice but to lower its forecast.

The other big California pension fund, the California State Teachers' Retirement System, is also considering lowering its forecast from its current 8 percent.

Both funds are wrestling with their forecasts as political pressure builds to reduce pension benefits for future employees. Gov. Arnold Schwarzenegger and his allies have called the current system "unsustainable" and in desperate need of an overhaul.