SACRAMENTO  (AP) — California's teacher pension fund earned just a 1.8 percent return from investments this year, a rate that fell well short of expectations and could add to the system's shortfall, officials revealed Thursday.

The expected return for the nation's second-largest public pension system had been 7.5 percent, which was lowered earlier this year from 7.75 percent.

The fund earned the return for the fiscal year that ended June 30, said Christopher Ailman, chief investment officer of the California State Teachers' Retirement System.

"The fact that it's a positive return is nice, but the fact that it's so low ... I'm sure will generate attacks" from public pension critics, Aliman told board members.

The pension fund manages retirement money for more than 600,000 active and retired teachers and has about $64.5 billion in unfunded liabilities. Ailman said the $150 billion fund has been impacted by economic uncertainties worldwide and the swings of the stock market.

He urged the board not to focus too much on returns from a single year. During the past 20 years, the fund has met its expected return rate of 7.5 percent, he said.

Currently, taxpayers are on the hook for billions of dollars in pension and health care benefits promised to public workers when they retire. The state said pension contributions accounted for 2.4 percent of state spending in 2006. It's expected to reach 3.9 percent of this year's $91.3 billion budget.

Gov. Jerry Brown and Democratic lawmakers have not been able to strike a deal on pension reform. Talks will continue after lawmakers return from a monthlong recess next month.

Brown, a Democrat, issued a comprehensive proposal last fall that focused on raising the retirement age to match Social Security and moving new workers to a hybrid system in which defined benefits are combined with a 401(k)-style plan widely used in the private sector.

Lawmakers said they want to allow workers to retire before age 67 with reduced benefits. They are refusing the governor's call for a defined contribution plan that places some of the risk on employees.

The California Public Employees Retirement System, the nation's largest public pension fund, runs a $228.5 billion pension system for more than 1.6 million state employees, school employees and local government workers. The system has an unfunded liability of around $85 billion.

That fund is expected to release its fiscal year earnings next week.