We got a pretty big problem folks and it is an elephant in the room that no one is talking about. I've mentioned on here before about the pension system disaster that is looming, but its time to talk about it again.
First, read this article from Bloomberg on the potential 1 trillion dollar bailout that may be necessary to keep these systems afloat (it's long but stick with it).
Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.
With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.
I have researched a little in this area (view report on midwestern systems here) and I can tell you even before the economic collapse these systems scared the hell out of me. The assets just don't really justify the payouts. These pension systems need to make upwards of 8 percent interest every year to try to cover that difference, but even in good years an 8 percent return on investment is difficult. To get there they need increasingly riskier investments, which when the bottom falls out like it has these past months, plummet like rocks leaving the pension system with -30 percent returns, like we have seen: Indiana, Arkansas, Pennsylvania, New York, West Virginia, Alabama, etc. Then, absurdly, some legislators have even proposed borrowing against what's left in the pension fund - effectively putting everything at risk. On top of that, we learn in this Bloomberg article that these weird accounting rules mask the real danger and allow legislators to continue to underfund these systems ... basically guaranteeing future failure unless either a) the economy shoots up like a rocket or b) our children and grandchildren try and figure something else out.
And, we should note that this is NOT a social security problem. Just because you hear reports out there that social security is solvent until 2030 or whatever does not mean state defined-benefit pension systems are. In fact, social security potentially is the much more healthy entity here, as is Medicare. Think about that for a second ... social security is the healthier entity!
We need to start seriously considering some changes to these systems, for financial solvency purposes if nothing else. States are making guarantees to teachers in lieu of paying them more up front, which is fine, but if you are putting off payment obligations like that you should also be storing away the right amount of money to cover those obligations, which the states are not doing. Vanderbilt just had a conference on this very issue, but we need more than talk right now. Some states are beginning conversations, but I have not seen any substantive progress yet. As the nation tightens it's belt, states should consider serious pension reforms among the various options. I love a defined-benefit plan as much as the next guy, but if the benefits are not going to be there because a) the benefits are never delivered or delivered in a reduced capacity (most likely) or 
b) the benefits get put there but bankrupt states (less likely but very possible given our current habit of trillion dollar spending sprees), then it is not really a plan at all. Right now, our plan is see no evil, hear no evil and certainly for the love of god don't speak any evil.