Even when times are good, states don't always fund their pension plans to actuarially recommended levels or take advantage of booms to build a financial cushion against the inevitable bust.

After all, those obligations are long-term and usually way down the road. As long as states have enough money on hand to pay their current retirees, it's often tempting to use the funds that should be covering future retirees for something else more immediate and, perhaps, more politically attractive. Employee demands for salary increases have often been countered with promises of better retirement benefits down the road. 

"For institutions under stress, pensions have been a tool for escaping the tough decisions," writes Roger Lowenstein in his book, "While America Aged."

"A sort of devil's bargain is struck, whereby the unions (which know that pensions are constitutionally guaranteed) push for benefits that are beyond the ability of governments to properly fund. The unions get their promises; the politicians get to satisfy a powerful constituency. And by shortchanging their pension funds, they can run their budgets on borrowed time and put off the necessity to tax until a later generation."

So what are states to do?

Their options historically have been limited because their pensions are either constitutionally mandated or negotiated collective bargaining agreements. States and municipalities can't just liquidate a troubled plan, the way a private company can, leaving participants to be covered by the Pension Benefit Guaranty Corp.

But there's a new approach some are taking, a radical step away from tradition that goes much farther than merely cutting benefits or tinkering around the edges in some other way.

When and where they can, these plans are moving away from defined benefit plans and substitute a defined contribution plan.

These states' labor contract won't allow them to make that kind of change with participants already covered under the plan. But they can with new hires.

Pennsylvania may be doing this soon. The state's pension system is underfunded by $47 billion, a number that's expected to grow to $65 billion by 2018. Two state representatives have introduced legislation what would freeze Pennsylvania's state pension system and convert to a defined contribution system for new hires. The new DC plans would provide a 4 percent employer match and a mandatory 4 percent minimum employee contribution.

"I think we need to stop adding new hires to our defined benefit plans," Rep. Warren Kampff wrote in a memo that accompanied his bill in the Pennsylvania legislature. "These systems are seriously underfunded, and the vast majority of our constituents support creating a retirement benefit for government employees which mirrors their own."

Kampff, addressing concerns about the costs of transitioning state employees to a DC plan, cited studies by Milliman, the national actuarial firm, TIAA-CREF, the long-established DC plan administrator, and The Arnold Foundation, which pension reform advisor, that "debunk the transition cost myth." 

Not surprisingly, unions often stand in the way of such efforts.

In New York, Gov. Andrew Cuomo's proposal to replace the traditional defined benefit plan for new employees with a defined contribution plan and reduce their benefits has brought down the wrath of public-employee unions.

In Illinois, Gov. Pat Quinn's plan to freeze workers' annual 3 percent cost of living increase for three years is drawing fire from politicians, unions, and pensioners alike.

To help ease the pain for all, some states now offer employees a choice between a DB plan and a DC plan.

In many of those states, according to a Milliman publication, "Public Plan DB/DC Choices," workers clearly preferred the DB alternative.

In Nebraska, some workers were given only a DC plan while others were put into a DB program. The DB plan so consistently outperformed the DC plan that, since 2003, all workers are part of a hybrid DB plan. A similar thing happened in West Virginia, where the state decided that funding a DB plan properly would be cheaper than providing equivalent benefits through a DC plan.

On the other hand, in Louisiana, Gov. Bobby Jindal's attempt to replace the state's public pension with a DC plan was just declared unconstitutional by the Louisiana Supreme Court.