San Francisco: Late last month, the nation’s largest pension fund, the California Public Employees’ Retirement System, rolled back the expected rate of return on its investments, bracing for more conservative gains after a bull-market run pushed stocks to record highs.

The decision means that the system’s 3,000 cities, counties, school districts and other public agencies will have to put more taxpayer money into the fund because they can’t count as heavily on expected investment income to cover future benefit checks. The impact will be the biggest for those already deeply in debt to the retirement plan and struggling to catch up.

Riverside County, Santa Clara County and the Los Angeles Unified School District have the highest unfunded liabilities among localities that participate in the system, known as Calpers, according to an analysis of 2015 audits by Moody’s Investors Service of those it rates that are in the plan. Many California counties and cities, including San Francisco and Los Angeles, run their own retirement systems.

“Their unfunded liabilities are large in part because they are large organisations and California has been relatively generous in providing pension benefits,” said Eric Hoffmann, senior vice president at Moody’s. “They’re going to have to dedicate more of their discretionary revenue to making pension payments than they did in the past.”

As a result of the Dec. 21 vote by the Calpers board, the fund will reduce the annual investment return it anticipates — which actuaries use to determine the size of annual pension contributions — to 7 per cent from 7.5 per cent over the next three years. The increases will take effect for school districts and local governments in July 2018, a year after it kicks in for the state.

In the long run, the shift may prove positive for the ratings of California governments by forcing them to shore up their retirement plans and reducing the unanticipated contribution increases that have followed years of lacklustre returns, Moody’s said in a statement Thursday.

The counties are highly rated, with solid balance sheets, and are “relatively well positioned to manage this increase particularly now while revenues are growing,” Hoffmann said. The Los Angeles school district, the nation’s second-largest, also faces additional unfunded liabilities from a different retirement system for teachers, he said.

The following are key facts about the three, according to data provided by the governments, Moody’s and financial filings:

Riverside county

Population: 2.36 million. Number of full-time employees: 19,784. Moody’s rating: Aa3. Unfunded Calpers liability: $1.45 billion (Dh5.32 billion). Latest Calpers contribution: $247 million for fiscal 2017. Size of general fund: $3.1 billion. Impact: The county is the largest local participant in Calpers, so its rank as having the largest unfunded liability “would not be a surprise. We have been forecasting a long-term trend of increases, but the increased cost short-term will put more pressure on our budget,” said Paul McDonnell, assistant CEO-Finance.

Santa Clara County

Population: 1.9 million. Number of employees: 17,719. Moody’s rating: Aa2. Unfunded Calpers liability: $1.44 billion. Latest Calpers contribution: $444 million for fiscal 2017. Size of general fund: $3.19 billion. Impact: The county, the epicentre of Silicon Valley, expects to pay about $37 million more a year for its pensions after the new rate is fully implemented in the short term, but over 30 years it anticipates that the contributions will drop along with the unfunded liability. “Given the recent strength of the local economy, taking action now to improve the funding of the pension fund in effort to reduce costs in the long term makes financial sense,” said Rey Guillen, Employee Benefits Director.

Los Angeles Unified School District

Total enrolment including adult education: 734,641. Number of employees: 60,191. Moody’s rating: Aa2. Unfunded Calpers liability: $1.1 billion. Latest Calpers contribution: $78.2 million in fiscal 2017. Size of general fund: $7.59 billion. Impact: “There will be a significant impact, and we have to manage the budget accordingly,” said John Walsh, deputy chief financial officer.