Public pensions earn 3.4 percent for worst showing since 2012

The retirement systems registered returns of almost 17 percent in fiscal 2014 and 12.5 percent in 2013 as asset prices benefited from the Federal Reserve's policy of keeping short- term interest rates near zero and as the economy strengthened. Most U.S. states and many U.S. cities have fiscal years ending June 30.

Typical target

State and local pensions count on returns of 7 percent to 8.5 percent to pay retirement benefits for teachers, police officers and other civil employees. When pensions don't meet their targets, taxpayers have to make up the difference, leaving less money for services.

Pressure on governments to increase pension contributions has mounted because of investment losses during the recession that ended in 2009, benefit increases, rising retirements and flat or declining public workforces, according to a July 27 Fitch Ratings report.

Governments' unwillingness to fully fund their annual required contributions has also depleted assets. In fiscal 2014, only about 40 percent of public pensions received their full annual required contributions, according to Fitch.

The California Public Employees' Retirement System, the biggest U.S. pension, with $300 billion of assets, reported returns of 2.4 percent for the fiscal year ending June 30, below its assumption of 7.5 percent.

Estimates of the pension-fund deficit facing states and cities vary, depending on the assumptions used to calculate costs over the next several decades. According to Fed figures, the governments have $1.4 trillion less than needed to cover promised benefits.