Many states expanded benefits when times were flush without setting aside extra cash to fund them. When the recession hit, major investment losses combined with plummeting tax revenues created a pension burden that was far greater than many states and cities could handle.
In 2010, the gap between what states had promised in retirement benefits and the amount of cash they had set aside to fund them was $1.38 trillion, according to the Pew Center.
Yet, critics counter that the states' pension cuts could leave millions of future retirees without an adequate safety net. In some states, public workers are exempt from Social Security payments -- making pensions their main source of retirement security.
"For most of our members, their pensions are their life savings," said Steven Kreisberg, collective bargaining director for the American Federation of State County and Municipal Employees.
In Louisiana, state actuaries cautioned against switching new workers to a cash balance pension plan -- where payments are largely determined by the performance of invested contributions instead of a percentage of the worker's final salary -- since the change limits benefits for employees who become disabled or for family members of employees who die before reaching retirement age.
"Because there is no Social Security coverage, such a member may very well become a ward of the state because he or she has no other available resources," the actuaries wrote.
That plan, scheduled to take effect in July, is now in limbo after a Baton Rouge judge ruled last month that the law was unconstitutional for not receiving a two-thirds vote in the state legislature. State Governor Bobby Jindal plans to appeal the ruling.
State pension cuts could also affect the attraction and retention of future public employees and the quality of applicants.
Before the recession, studies showed that public and private-sector workers had roughly equal compensation when both salaries and benefits were considered, said Jean-Pierre Aubry, at Boston College's Center for Retirement Research. "But now, with the cuts, employees should recognize that there is a chance that they might be getting a worse deal than in the private sector" he said.
In their report on teacher pension cuts, Munnell and Fraenkel warned that cutting pension benefits without increasing salaries could hurt the recruitment of quality public school teachers.