Oct. 29 (Bloomberg) -- Retirement accounts for states and local government employees lost $600 billion in value in the year that ended June 30, a decline of 21 percent, a U.S. Census Bureaureport shows.

Assets of the 100 largest public retirement systems, accounting for 89 percent of public pension activity, fell to $2.2 trillion, the lowest in five years, the Census Bureau said.

The decline, coming as the Standard & Poor’s 500 Index fell 28 percent in the worst recession since the Great Depression, portends cuts in benefits or increases in taxpayer and employee contributions.

“If you have a system like we have in Illinois that was severely underfunded in the good times, this is not a temporary problem,” said J. Fred Giertz, an economics professor at the University of Illinois at Urbana-Champaign and a trustee of the State University Retirement System.

The falling pension assets add to the challenges of states facing combined budget gaps of $350 billion for the current and coming fiscal years, according to the Washington, D.C.-based Center on Budget and Policy Priorities.

To contact the reporter on this story: Dunstan McNichol in Trenton, New Jersey, at dmcnichol@bloomberg.net.

Last Updated: October 29, 2009 13:05 EDT