Massachusetts Treasurer Steven Grossman wants to reduce the assumed rate of return on the state’s $50 billion in pension-fund assets, currently at 8.25% and among the highest for U.S. public retirement plans.

Grossman, a former Democratic National Committee chairman, says he’s gathering legislative support for a cut to 8%, with an option to go lower. That would put Massachusetts more in line with other states, yet the move would cost taxpayers and covered workers $1.7 billion to maintain funding commitments.

“I will predict right now with a fair degree of confidence that we will be using the 8% number for our expected return,” says Grossman, 66. The rate is set by law, and the earliest it could be changed would be next year.

More than a third of 126 state and municipal pensions, including the California Public Employees’ Retirement System, the largest with $238.5 billion in assets, have cut investment assumptions since 2008 as returns have lagged behind historical averages, according to the Public Fund Survey. Wilshire Associates said recently that the median return for public systems was 1.15 percent for fiscal 2012 as the European debt crisis and a slowing global economy curbed equity gains.

While a lower rate of return may better reflect current market trends, the change may stir controversy. It can increase the Massachusetts system’s unfunded liability, or the difference between projected assets and amounts owed to beneficiaries, pegged at about $19 billion in January 2011. A lower return assumption can also force higher contributions from the state, cities and workers to meet funding commitments.

“Whatever increase in our unfunded liability is more than made up for by the increased confidence from the rating agencies and investment community in our willingness to reflect reality and common sense,” Grossman says of the change he’s seeking.

“In the wake of the big market downturn in 2008, there’s a new-found appreciation for volatility,” says David Driscoll, the national head of public-sector services at Buck Consultants in Boston. “That’s fundamentally what people are trying to avoid,” he says, calling it one of the “consequences of negative surprises.”

Massachusetts is one of nine retirement systems, out of 126 tracked by the Public Fund Survey, that assume investment earnings of 8.25% a year. Most, 44, forecast 8%.

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