The California Public Employees’ Retirement System, the largest U.S. pension, has seen its market value decline 4.8 percent this year after stocks fell amid the brewing fiscal crisis in Europe and slowing of the U.S. economic recovery.

The fund’s value declined to $226.1 billion as of June 8, down from $237.5 billion at the start of its fiscal year July 1. As recently as March 31, the fund was up 1.9 percent for the first nine months. Since May 1, the Standard & Poor’s 500 index of stocks declined 5.8 percent. Half of Calpers’s money is invested in equities.

“The markets have been tough for us in May and June,” Joe Dear, the fund’s chief investment officer, told the governing board Monday. “These are very difficult market conditions.”

If the trend continues, it would mark the third time in five years that the fund has lost money, including a 23 percent decline in fiscal 2009, the worst on record. While Calpers spreads its return over 15 years to smooth taxpayers’ burden, another loss may make it hard for the fund to meet its assumption of 7.5 percent earnings annually to cover benefits to 1.6 million retired employees and their families.

For the 10 years ending Feb. 29, the fund is up 5.9 percent. It earned 20.7 percent last year, the best result in 14 years, led by stocks and private equity. The previous year, it rose 11.6 percent.

Underfunding Increase

California’s state pensions in 2010 had about 81 percent of what they needed to cover the benefits they promised, down from 87 percent in the preceding year, according to an annual study by Bloomberg Rankings. The median for all states was 75 percent, the data show.

“The financial markets are challenging for all investors,” the fund’s chief investment officer, Anne Stausboll, said in a statement. “It’s important to recognize that Calpers is a long-term investor and over the years we have achieved the returns needed to fund benefits.”