Both California's San Jose and San Diego voted in ordinances calling for limitations on existing cost-of-living increases and pension benefits, though public employee unions are fighting the rulings and state leaders have promised not to cut benefits, fearing reprisals from voters.

Several California cities, including Stockton and San Bernardino, have sought or are in the process of securing bankruptcy protection to cover unreachable costs they say include pension obligations to former employees.

As a result, fund managers find themselves facing extraordinary pressure to both maximize profits and create more realistic expectations for the kinds of returns funds will generate as global economic troubles continue for the forseeable future.

That fits in with data suggesting that the median annual return for most funds in 2011 was just 4.4 percent, and only 3.2 percent over the past five years. The 10-year average, according to Callan Associates, was about 6 percent.

The funding status of public pension funds has also slowed dramatically, with the gap between assets and obligations topping $750 billion at the end of 2010, according to the Pew Center on the States.

The long-standing notion that pensions were funded to the tune of 80 percent has also been questioned by organizations including the American Academy of Actuaries. Another non-profit says that pension funds have been using the wrong projections and might be in debt to the tune of $4.6 trillion.

Many pension funds have opted to gradually roll back their projections; analysts suggest that even 6 percent might be an ambitious goal, given the existing conditions.

Smaller public retirement programs have also found themselves literally battling with their fund managers to make their systems profitable – or to keep a handle on what investments they do hold.

The New Orleans Times-Picayune recalls the unpleasant experience the administrators of three Louisiana municipal employees' retirement systems had in visiting their New York City-based hedge fund, where they had invested more than $100 million in retirement assets at a promised 12 percent return.

The Louisiana reps hoped to cash out a significant portion of their holdings but their requests were brushed aside and the money remains in limbo, if available at all - as the fund's complex holdings in the Cayman Islands, the Bahamas, Bermuda and Delaware have made it nearly impossible to petition to release the money.

The hedge fund has since declared bankruptcy and the investors, which include the New Orleans Firefighters' Pension and Relief Fund, may be left on the hook for the cash.