When Comptroller Thomas DiNapoli announced last month that New York’s state and local pension fund had earned 14.6 percent on its investments in fiscal 2010-11, the AFL-CIO’s Dennis Hughes said the the comptroller’s numbers had “call[ed] into question the need for so-called ‘pension reform’.”

Memo to Mr. Hughes: as of yesterday’s market close, the S&P 500 had dropped almost 16 percent since the pension fund’s fiscal year ended March 31. In fact, the major market indices are now lower than they were at the end of the New York pension fund’s previous fiscal year, back in the spring of 2010.

Standard & Poors’ downgrading of the U.S. credit rating is just a symptom of broader economic and financial problems affecting the market.  GDP growth in the second quarter was an anemic 1.3 percent.  The manufacturing supply index recently fell to a two-year low.  More discouraged workers are leaving the labor force.  House prices have dropped to 2003 levels, but American financial institutions still hold $3 trillion more in mortgage debt than they did then.  Meanwhile, a financial crisis is brewing in Europe. All of these factors have led economists and investors to fear we’re entering another recession.

While the stock market will rebound sooner or later, the events of the past few weeks are a reminder that chasing maximum returns by investing predominantly in risky financial assets is … risky.  The point of public pension reform is to reduce the risk for New York taxpayers, who — in addition to their own financial concerns — now stand behind a constitutional guarantee of defined-benefit pensions for all current and future state and local government retirees.