The managers of Virginia's pension fund got bonuses in 2010 and 2011 even though they failed to meet the benchmarks that would justify such payouts, a new report shows.

Investors for the Virginia Retirement System used to get bonuses based on the pension fund's performance. No one received a bonus in fiscal year 2009, and afterward the fund's trustees changed the system so that they -- and not a performance benchmark -- would decide who got a bonus.

A year after the system was changed, VRS employees shared $2 million in bonus payouts even though the pension fund did worse than in 2009, the Joint Legislative Audit and Review Commission reported Monday. After meeting benchmarks in 2012, staff split about $3.7 million, roughly the same amount employees received in 2011, when goals were not hit.

The state auditors faulted the new system, which they said led to "disproportionate reliance on qualitatively, subjective measures of performance" and inappropriate bonuses. VRS said it was examining its bonus policies.

"This is something that the VRS board looks at and will be continuing to look at in the upcoming year," said VRS spokeswoman Jeanne Chenault.

The auditors will re-examine VRS' policies next year to see if the system has improved.

Sen. John Watkins, R-Midlothian, who sits on the audit committee, said the pension fund has to pay performance-based bonuses because it competes with the private sector for investment managers.

"If we unloaded all of this work into the private sector, you're going to pay a premium for the work done," Watkins said. "[But] we've got to keep a good eye on this thing and make sure the performance match ups with the incentives they're being paid."

Virginia Gov. Bob McDonnell and lawmakers took steps this year to shore up VRS by requiring state workers to pay more toward their retirements and fully funding pension obligations in 2013 and 2014. But the audit found that the pension fund's shortfall is growing. VRS was 70 percent funded in 2011, but that dropped to 65 percent this year.

"The governor recognizes the challenges presented from unfunded liabilities in the pension system," said McDonnell spokesman Paul Logan.

Auditors told lawmakers in Richmond on Monday that the pension fund should be solvent late within the next decade.

"I'm probably not going to be here for another 14 years, so if someone goes in and upsets the applecart, all bets are off," Watkins said. "If we stay the course, we'll get back to where we need to be."