Growing Deficits Threaten Pensions

Many public pension managers say their projections are based on past experience. Moreover, they say they can take more risks than private companies because there's no chance of going out of business.

"There's been a government in our city since 1779," said Mark Jinks, chief financial officer for Alexandria. "You can't be sure that the promises made to private sector employees will outlive their company."

Another concern for public funds is demographic: We are living longer and more of us are getting old. By 2015, life expectancy is expected to reach 79.2 in the United States. By 2030, one out of five people will be over 65.

In addition, retiree costs are soaring. A study by California predicted its retiree health care costs would jump from $4 billion today to $27 billion by 2019.

Nor has the crisis in the housing and debt markets helped matters. Investment returns for most pension funds across the nation turned negative for the first part of this year. State and local governments are also facing budget deficits that are expected to top $30 billion next year, according to Standard & Poor's, making it tough for officials to find more funding for pensions.

Urahn, of the Pew Center, called the current environment "a perfect storm" and expressed a concern over whether governments may be tempted to cut their pension contributions. Yet most are loath to revise the benefits employees have traditionally been promised.

"The age of retirement was set when people did not live that long. It's very hard to change that now," she said. "People feel these pension obligations were a promise. And changing them feels like you are breaking a contractual promise, that you are changing the rules of the game. But the game has changed."