First it was Calpers (California Public Employees' Retirement System), the nation's largest pension fund. And now it's Calstrs (California Public Employees' Retirement System), the second largest.

They are both seeking to reduce investment risk. Calpers has jettisoned hedge funds and several of its private equity fund managers for starters. And now Calstrs is thinking about avoiding some stocks and bonds to defend against a market blowout, The Wall Street Journal reports.

Calstrs managers are talking about putting up to 12 percent of the fund’s portfolio—or more than $20 billion—into Treasurys, hedge funds and other alternative investments that hopefully will withstand falling financial markets, according to public documents and knowledgeable sources, The Journal reports.

The S&P 500 index' 11 percent plunge between Aug. 17 and Aug. 25 illustrates the danger. "There’s no question” that recent market volatility "has been painful," Calstrs Chief Investment Officer Christopher Ailman, told the paper. Calstrs now has a stock weighting of about 55 percent.

As for Calpers, it is working on a plan in which it would "begin slowly moving more money into safer investments such as bonds" from riskier assets like stocks, according to Melody Petersen of the Los Angeles Times.

That would bring Calpers' investment style closer to that of defined-benefit plans in the private sector.

Calpers faces serious cash shortfalls—$5 billion last year. And it's concerned about potential market losses. "We know another recession is coming," Eric Stern, a finance department analyst told the Times. "We just don't know when."

California isn't the only state facing a pension crisis for its government employees. A new study from the Pew Charitable Trusts shows that the nation’s state-run pension systems had a $968 billion shortfall in 2013, a $54 billion increase from 2012.

Calpers probably doesn't regret its decision to jettison hedge funds, particularly this month. The 11 percent plummet by the S&P 500 index between Aug. 17 and Aug. 25 put a major hurt on hedge funds that were bullish on stocks.

Related Stories:

• Calpers Plans to Cut Investment Risk
• Financial Times: Calpers' Private Equity Problems Mount