Like many Californians, I fell for the 1990s stock market bubble. With a 401(k) investment plan as my primary source of retirement savings, I watched excitedly as the Dow Jones Average broke new records daily. I even used to play around with a computerized spread sheet, projecting my growing balances into the future, wondering if I might someday retire a millionaire.

I knew the huge gains couldn't continue forever. So I'd use a conservative rate of return of say, 8 percent a year, to dream about how much my savings might be worth by the time I turned 60.

The bad news is that those projections now appear to have been horribly optimistic. The calculations I thought were conservative were based on a wholly unrealistic assumption: that while my balance might grow more slowly, it would not decline.

But boy, did it. Today, even after some healthy recent gains, my account is still smaller than it was at its peak three years ago.

The good news is that my dreams were just that. I didn't retire early, or stop paying into my retirement fund. And while my losses hurt, my gains were only paper profits to begin with. I never really lost anything.

The state should be so lucky. At the same time I was crunching numbers at home, the California Public Employees Retirement System (CalPERS) was doing the same in its big building near the state Capitol. By 1999, the pension board concluded that the system had far more than it needed to finance the retirement of hundreds of thousands of state workers.

The employees, naturally, agreed. So CalPERS and the public employees unions got together and persuaded the Legislature and Gov. Gray Davis to increase pension benefits for retirees and give a boost to those still working. Public safety employees got the most, but every worker and almost every retiree got some piece of the bounty, with increases ranging from a few percentage points to as much as half.

All of this was supposed to happen without costing taxpayers anything. That big surplus would pay for it all.

Even with the benefit increases, the CalPERS board said at the time, taxpayer contributions to the retirement fund for state employees would continue to decline, from $1.2 billion in 1997-98 to $400 million by 2003-04. And the public's obligation to the retirement for non-teacher school employees, the Legislature was told, would remain zero for at least the next 15 years.

Instead, taxpayers now are being asked to pour $2.2 billion into the fund for state workers this year -- five times more than CalPERS projected. And the contribution for school employees will be $869 million.

How could they have been so wrong? One reason for the disparity: CalPERS adopted accounting gimmicks that inflated its balances so as to entice lawmakers into adopting the benefit boost. Incredibly, the biggest run of stock market gains in the pension fund's history was not big enough. CalPERS goosed those gains to make them appear even bigger.

The pension system normally uses methods that spread the gains from good years over time to avoid big fluctuations in the fund balances. But in 1999, the board voted to increase its assumed surplus by billions of dollars by recognizing its investment gains more quickly -- as long as the Legislature agreed to use the funny money to pay for higher benefits.

Davis and the Legislature, led by Democratic Sen. Deborah Ortiz of Sacramento, took the bait. Now taxpayers are paying the price. The fund's surplus would have declined dramatically in the face of the stock market crash no matter what the state had done. But the gimmicks, and the higher benefits they helped make possible, made a difficult situation even worse.

At the time, CalPERS board members, who largely represent the interests of retirees and state workers, turned away anyone who warned that the stock market gains the fund was enjoying wouldn't last forever. And the pension system's chief actuary, Ron Seeling, whose job is to predict the future based on the past, never suggested that things could go so wrong so quickly.

Pressured by state Treasurer Phil Angelides to produce a "worst-case" scenario, Seeling said in June 1999 that taxpayers might possibly be on the hook this year for $900 million to the state and school employee retirement funds combined.

Instead, that tab will be more than $3 billion.

Seeling says the odds against the pension fund's investments suffering two consecutive down years -- 7.2 percent in 2000-01 and 5.9 percent the year after -- were 100 to 1. A third year of declines, which is now imminent unless the stock market finishes June with a rush, would have simply been unthinkable. But now that it's happened, the once-confident Seeling is a lot less sanguine about the ability of his calculations to tell the future.

Speaking to a group of local government officials a few weeks ago, Seeling conceded that the actuary's method works fine if "reality is close to what's assumed." Otherwise, he said, "It's only about as good as using a crystal ball."

On this shaky science the state gambled billions.