PROVIDENCE — Rhode Island’s pension fund lost more than 19 percent of its value over the last year, dropping from $7.8 billion to $6.01 billion in the last 12 months.

It marked the second year in a row of losses.

In the year that ended on June 30, the state-run pension fund for state employees, public school teachers and some municipal employees lost close to $1.5 billion of its market value, a 19.18 percent loss. After paying out more each month in benefits than it was receiving in employer and employee contributions, it shrank by another $200 million.

Despite this recent run of losses, state officials say there is no immediate danger for state and local employees and teachers whose retirement checks are drawn from the pension fund, which is made up of a mix of investment earnings, taxpayer contributions and employee contributions. These retired public employees are guaranteed pension payments for life, regardless of the stock market’s performance.

But the market losses have already eliminated any possibility of taxpayer savings this year from state lawmakers’ decision to curb annual cost-of-living increases and institute a minimum retirement age for all state pensioners. As state budget officer Rosemary Gallogly explained Wednesday: “The rate of payroll determined for FY2010 will not change as a result of pension fund performance.”

While the overall size of the state’s pension portfolio dropped by 22.9 percent over the period, General Treasurer Frank Caprio said Rhode Island’s pension plan is nonetheless “outperforming some of the nation’s largest and well-followed funds.”

By way of comparison, he cited California’s huge government pension fund, which lost $56.8 billion over the last year, almost a quarter of its investment portfolio.

Caprio said: “Harvard’s endowment is down an estimated 24 to 30 percent over the same time period, while CalPERS [California’s fund] is down almost 24 percent and the S&P 500 was down 26.22 percent.”

Not all states have gone public with their end-of-year investment results.

But in an interview on Wednesday, Mike Travaglini executive director of Massachusetts’ Pension Reserves Investment Management Board, acknowledged that his state’s pension fund ended up $12.8 billion poorer, after 23.6 percent in market losses helped shrink it to $37.8 million.

He suggested several reasons his state’s market losses might exceed Rhode Island’s, among them: a lower fixed-income allocation than most of its public-sector peers. He said the decision was made consciously out of a belief that fixed-income investments don’t “make sense over a long period of time” as a strategy for producing the anticipated 8.25 percent annual gain on which his state’s pension-funding strategy is hinged.

In Rhode Island, fixed-income was one of the few bright spots in the state’s own stymied strategy for getting 8.25 percent in annual gains.

Rhode Island’s assets are divided into four investment classes, with 42 percent of the money invested in domestic equities, 20 percent in international equities, 25 percent in fixed-income and 13 percent in real estate and private equity.

The state lost close to 25 percent on its domestic and international investments in the stock market, and another 18 percent on its real estate and private equity holdings, while gaining 3.8 percent on fixed income, according to Kenneth Goodreau, chief investment officer for the state treasurer’s office.

There was some confusion in the information initially coming out of the state treasury, with a spokesman initially saying the fund stood at $6.1 billion, and Goodreau saying $6.01 billion. Staff also had trouble pinpointing the size of the 5.3 percent prior-year investment loss.

But Caprio suggested the losses could have been greater had he not taken steps to reduce expenses.

“Through a top to bottom review, we have focused on asset-allocation, minimizing risk and reducing expenses,” said Caprio, a likely 2010 candidate for governor. His office takes credit, for example, for savings upward of $9 million in fees by replacing its more expensive “active managers” and “their day-to-day trading costs” with “passive managers” who maintain “the same equity exposure through index funds with lower fees.” Caprio’s comments drew this response from Cranston’s former GOP Mayor Stephen Laffey, as he weighs a return to politics: "It seems that only the General Treasurer is happy about losing billions of dollars of hard-working pensioner’s assets over the last couple of years. … This is unconscionable … Rhode Island, under Frank Caprio, has the worst-funded state pension system in the United States of America.”

“I have said many times that the only way to save the pension system is to end it and give everyone their money and go to a 401(k) plan ... like the people in the private sector,” Laffey said in an e-mail.

kgregg@projo.com