By Dale Kasler
dkasler@sacbee.com
Published: Tuesday, Jul. 17, 2012 – 12:00 am | Page 6B
Last Modified: Tuesday, Jul. 17, 2012 – 6:33 am

PETALUMA – California’s big public pension funds are continuing to swim in choppy investment waters, leaving the state and local governments gasping for air.

CalPERS reported a 1 percent annual profit on its investments Monday, following CalSTRS in delivering disappointing results for the latest fiscal year.

The 1 percent gain was well below CalPERS’ 7.5 percent official forecast and will likely prompt the nation’s largest public pension fund to impose higher contribution rates on the state and participating municipalities. That could create additional stress on cash-strapped public agencies throughout California – and create new fodder for the political debate over the cost of public employee pensions.

It will be several months before the agencies know how big a rate hike they face, although CalPERS chief investment officer Joseph Dear said the latest investment results “shouldn’t have a dramatic impact” on contributions. As it is, the state contributes around $3.5 billion a year to the California Public Employees’ Retirement System.

Dear announced the much-anticipated investment results at the CalPERS governing board’s annual offsite meeting in Petaluma. He called the 2011-12 fiscal year “a very challenging period for investors,” with results dragged down by the European debt crisis and an overall slowdown in economic growth.

CalPERS’ announcement followed a similarly disappointing result from CalSTRS last week. The teachers’ retirement system said it earned 1.8 percent in the year ending June 30. That, too, was far below its 7.5 percent forecast.

A year earlier, both pension funds earned profits in excess of 20 percent, adding tens of billions of dollars to their reserves. But the latest figures show that neither has completely succeeded in recovering from the horrific losses suffered in 2008.

Investment performance is critical to both funds, their member public agencies and the employees who rely on them for their retirements. The more money the funds earn on investments, the less they have to rely on taxpayers and employee contributions.

The latest results are likely to catch the Legislature’s attention. Gov. Jerry Brown and Republican lawmakers have been pushing to overhaul the public pension system to reduce costs.

Brown so far has been unable to reach agreement on a plan with his fellow Democrats in the Legislature, and his aides said last week that they’re no longer planning to put his proposal on the November ballot. Still, they vowed to push some reforms through the Legislature this year.

CalPERS has the authority to impose higher contributions on the state and local government agencies, although there won’t be any changes until next summer for the state and July 2014 for the local governments. CalSTRS needs the Legislature’s permission to raise rates and last week repeated its call for financial help from lawmakers.

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