California's two biggest public employee pension funds handed out millions of dollars in bonuses last year to their top executives and investment managers, despite losing billions of dollars.

The biggest bonus check, $322,953, went to Christopher Ailman, chief investment officer of the California State Teachers' Retirement System. It nearly doubled his base pay of $330,000 for fiscal 2007-08.

Ailman's counterpart at the California Public Employees' Retirement System, Russell Read, received a $208,677 bonus to his $555,360 base pay in August, more than a month after he had resigned from the fund's top investment job.

Despite continued losses in the market, both funds expect to cut more bonus checks, which they call "incentive awards," this summer.

Retirement fund officials say bonuses like those paid to Ailman and Read help attract and retain top talent. It's also cheaper than hiring outside help to manage investments, they say.

Still, the practice has its critics.

"Paying bonuses – especially right now – it just doesn't look good," said James McRitchie, a retired state worker and publisher of the Elk Grove-based PERSwatch.net. "It just doesn't go over well with the public."

Assemblyman Anthony Portantino, D-Pasadena, is pushing legislation to freeze pay for state workers who make more than $150,000 annually until 2012.

The bill, AB 53, initially included a freeze on bonuses, but those provisions were removed "over concerns of breaking existing contracts," said Portantino spokesman Michael Tamariz.

CalPERS has opposed the bill, saying that the mere whiff of limiting state employee pay has already hobbled its ability to compete for the best talent.

"(We've) lost two potential investment candidates in recruitments lately due to the uncertainty of pending legislation that would affect incentives," said CalPERS spokeswoman Pat Macht.

Nationwide, funds losing

The CalPERS and CalSTRS boards approve their respective funds' bonus plans, which reward employees depending on how investments fare compared to other portfolios or market benchmarks.

So when the losses pile up – and both funds have lost billions of dollars since late 2007 – employees can still win bonuses if they lose less money than their benchmarks.

Over the past 18 months, public pension plans nationwide have lost a combined $1.3 trillion, according to the Center for Retirement Research. A recent study of state pension funds found that obligations outpace assets by $237 billion.

CalPERS has estimated its assets as of June 2008 would cover 92 percent of its obligations. CalSTRS was 88 percent funded as of June 2007, the last date for which the figure is available. Experts generally agree that healthy funds are at least 80 percent funded.

Those figures don't take into account the beating both funds have taken in the last year from bets that have gone sour.

CalPERS, the nation's biggest public pension fund, lost 2.4 percent on its investments for the fiscal year that ended June 30, ending a four-year run of double-digit returns. CalPERS paid about $4 million in incentive bonuses to 58 employees involved with investments. The checks went out in August.

The biggest award, $224,171, went to Senior Investment Officer Leon Shahinian. The second-biggest went to Read, who resigned as chief investment officer in June. Anne Stausboll became the fund's chief executive after receiving a $106,633 bonus for her interim work as Read's replacement.

Meanwhile, CalSTRS, the nation's second-largest public pension fund, lost 3.7 percent on its investments in 2007-08, then awarded $2.9 million in bonuses to 35 employees including Ailman, CEO Jack Ehnes ($205,000) and Real Estate Investment Director Mike DiRe ($164,731).

Since closing their books last year, both funds have lost dramatically more money with the stock markets' meltdown. CalPERS' holdings have fallen from $239 billion to $175 billion, a loss of more than 25 percent. CalSTRS' assets have dropped nearly 30 percent, from $162 billion to about $114 billion.

Call The Bee's Jon Ortiz, (916) 321-1043.