In August, the Securities and Exchange Commission charged the state with failing to fully disclose its pension liabilities to bond investors. In 2012, legislation was passed to improve long-term funding by, in part, increasing participant contributions to 6 percent of salary from 5 percent. 

The idea of converting pension assets and benefits to private insurers, which would manage and distribute assets in annuities, is a major part of Sen. Orrin Hatch's Safe Act, which he recently said he intends to push in Congress in 2015. 

Doing so would remove states' temptation to underfund pension obligations, according the Hatch. 

"The life insurance industry is reliably solvent because state insurance regulations are strict, with stringent reserve requirements and conservative investment standards," he told BenefitsPro.com on the eve of the last midterm election. 

"In fact, state-licensed life insurance carriers survived the 2008 stock market meltdown in far better condition than any other part of the financial sector," Hatch said. 

Others, however, question the insurance industry's capacity to address the issue. 

Alicia Munnell, director of the Center for Retirement Research at Boston College, suggested the idea many not even be legal in some states. 

"Is the suggestion to close down the current public-sector defined benefit plan and send all future contributions to the insurance company?" Munnell asked in a blog post. "In many states that path would be quite difficult given the employers cannot reduce future benefits for current employees. So I am not clear how a SAFE Retirement Plan would actually be adopted."