New Jersey lawmakers brooded over the latest bad news for the state's pension system yesterday: more than $20 billion in recent investment losses, including $9 billion in October alone.

In a hearing held days after a report detailed the damage, lawmakers homed in on a few eyebrow-raising decisions - including an an ill-timed investment in Lehman Brothers shortly before the firm toppled - but they had few solutions for a deepening problem.

William Clark, director of the state's Division of Investment, defended the pension system's performance, saying that despite the losses, New Jersey is actually doing better than most states struggling through the nation's economic meltdown.

He said lawmakers should consider the good - the state saw a better than 17 percent investment return last fiscal year - with the bad, including a Lehman move that turned so sour his office refers to the firm only as "the L word."

"On a percentage basis, [the losses] are what you would expect," Clark said. "Admittedly, it's a lot of money."

The losses represent just the latest blow to a retirement system that covers more than 700,000 state and local government workers, teachers, police and firefighters, and whose funding has been slipping for years.

After roughly a decade of skipping pension contributions or putting away only a small piece of what was required, state and local governments had a $28.4 billion long-term pension deficit as of June 30, 2007, an increase of more than $9 billion from two years earlier.

And those figures don't count the investment losses reported last week and hashed over yesterday.

The state's pension fund stood at $62 billion on Oct. 31, and several news reports said it may have lost another $3 billion to $4 billion since then. The fund stood at $82.5 billion 16 months earlier.

"I don't think any of us could have predicted that we would fall so far so fast," said State Sen. Barbara Buono (D., Middlesex), chair of the Senate budget committee.

The estimates are snap-shots of a fund meant to pay out benefits over years, meaning there is little immediate risk for retirees or public workers. But the larger the deficit gets, the more the cost for future taxpayers will grow.

And the hole may get deeper. Gov. Corzine last week called for letting towns delay $540 million of pension contributions due in April, in order to help them avoid tax hikes or service cuts.

Such a move would lead to bigger payments down the road, and Republicans said they would fight the idea.

"Failing to fund pensions in a year when the state's investment losses have exceeded $23 billion is completely irresponsible," Senate Minority Leader Thomas Kean Jr. (R., Union) said in a statement.

Lawmakers and employee labor unions pointed toward several culprits yesterday.

Some blamed past Legislatures and governors for failing to make annual pension contributions. Others eyed $115 million lost in the Lehman investment. Labor unions questioned "alternative" investments in hedge funds, real estate and private equity.

For years the state's pension fund was flush with borrowed money and booming investments, which were further inflated by accounting changes that made the holdings look even stronger.

But when the economy sank early this decade, and benefits were boosted, makeup pension payments came due once again. Governments said they could not afford it. So the state and towns began "phasing in" payments starting in fiscal years 2004 and 2005. They were supposed to gradually pay more and more of what they owed.

But the state contributed little until recently, when it has begun paying half of what it owes. Local governments have ramped up their payments and were to make full contributions next year, but might be spared by Corzine's plan.

Senate Majority Leader Stephen Sweeney (D., Gloucester) said lawmakers should bear the blame for skipping payments.

"Indict the Legislature because they are 100 percent at fault," he said. "They didn't listen to the actuaries, because the actuaries at the time said don't do this."

Republicans have hounded Clark for the Lehman decision, an investment that has prompted the state to consider a lawsuit against the company on the possibility that the firm did not provide accurate information.

Sen. Kevin O'Toole (R., Essex) noted that some members of the state investment council, which oversees pension-fund decisions, have Lehman ties. Clark said the council was not involved in the call to put money into the firm.

"There has to be more forceful activity coming out of your office to say that this kind of activity will not be tolerated in the future," O'Toole said.

Clark said Lehman looked like a better bet, at the time, than other financial-sector firms, which the state sold stakes in.

"Obviously I wish we had that one back," he said.

Lawmakers also eyed a recent $49.5 million investment in BlackRock Inc. The amount raised questions because it fell just below the $50 million threshold that would have triggered a review by the investment council. Clark said the division had to move fast to react to changing market conditions and that any future emergency investments would be disclosed on the division's Web site immediately.

A final piece of debate centered on the state's "alternative investments" in hedge funds, private equity and real estate, pursued since 2005. Clark said such choices saved the pension fund $2 billion, but labor unions believe they are too risky.

Hetty Rosenstein, New Jersey area director for the Communication Workers of America, said she feared the pension shortfall would lead to big investment gambles to close the gap.

But Clark said any investments aggressive enough to make up a deficit the size of New Jersey's would carry an "intolerable" amount of risk. Instead, he said, the state must pay into the system.

"We're not setting up an investment strategy designed to make up the shortfall," Clark said. "There's going, clearly, to have to be funding into the plan."