With the value of their investment assets plunging for the year ending June 30, Montana's two major state pension funds racked up massive increases in their unfunded liabilities, a legislative committee learned Friday.

Unfunded liabilities are potential shortfalls in pension funds. Large unfunded liabilities can signal serious future financial problems if major changes aren't made.

The Montana Board of Investments, which invests the pension contributions from the state and local school districts and public employees and teachers, reported the assets of these two funds plummeted by about 22 percent the past year.

Other public pensions and investment companies around the country reported similar results in what's being billed as the worst slide in the financial markets since the Great Depression.

The Montana Teachers' Retirement System (TRS) had an unfunded liability of $1.41 billion as of July 1, compared with one of $794.6 million as of July 1, 2008, an actuary for Cavanaugh Macdonald Consulting said.

Actuary Ed Macdonald said Montana certainly was not alone. The California Public Employees' Retirement System's investments lost 30 percent, he said.

The Montana Public Employees' Retirement System (PERS) saw its unfunded liability grow to $790.6 million as of mid-2009 from $439.4 million in mid-2008, according to its actuary with Cheiron.

"It's a very significant increase," said the actuary, Stephen McElhaney.

This grim, but not unexpected, news came at a meeting of the State Administration and Veterans Affairs Interim Committee. The 2009 Legislature asked the panel to study the public retirement systems and redesign the teachers' retirement system and make recommendations to the 2011 session.

Unfunded liabilities are supposed to be amortized or accounted for over a 30-year period under governmental accounting standards.

However, the amortization period went from 31.3 years in 2010 to "infinite" in 2011 for the TRS. For PERS, the amortization period went in mid-2008 from 24.8 years to "does not amortize" in the current report.

Gov. Brian Schweitzer and the Legislature already have bailed out TRS by dumping $150 million of state general fund money into that fund since December 2005. PERS received a $25 million infusion.

Under the pension funds' assumptions, PERS counts on the Board of Investments to earn an 8 percent annual return averaged over time, while TRS expects a 7.75 percent annual return averaged over time.

"Even if we recover all the losses for the last two years this year, we're still going to be 16 percent in the hole," said Carroll South, executive director of the board of Investments.

South added later: "We're not going to buy our way out of any problem with (future) investment returns."

Sen. Joe Balyeat, R-Bozeman, said that if the state doesn't change the benefits, by 2029 the taxpayers will be contributing 17 percent per employee for their pensions or more than twice the current rate. Both taxpayers and the employees contribute to the funds.

The committee is studying ways to revise the pension funds to make them more affordable. Some ideas being batted around for future employees include:

-- Applying the reduced early-retirement benefits to workers retiring before age 60, regardless of the years of employment.

-- Applying this reduced early-retirement benefit for future employees retiring with less than 15 years of employment.

-- Changing the timeframe used in both retirement plans to calculate the highest average compensation for future employees to more than 15 consecutive years of work instead of the current three highest consecutive years of work.

-- Altering the annual cost-of-living increases to reduce costs by having the now constant rate fluctuate based on investment returns.

-- Increasing the state's contribution rate.

-- Creating a hybrid retirement plan for teachers as suggested by the TRS board.