Today's New York Times includes an excellent article — the first of a series — on the underfunding of state and local government pension plans. Different calculations of the nationwide unfunded liability — which ultimately is the taxpayers' burden — range from $375 billion to $800 billion.
Times reporter Mary Williams Walsh nicely summarizes the dynamic that creates this liability:
[Public pension plans] are governed by boards that often include municipal labor leaders, whose duty to represent their workers’ interests can easily conflict with their fiduciary duty to represent the plan itself. And even the most exemplary pension boards can be overruled, in many cases, by politicians whose priorities may be incompatible with sound financial management.
In other words, politicians and labor leaders who need political help today make grand promises of future benefits to special interests. But the politicians don't want to anger taxpayers with the cost of those benefits, so they underfund the promises — after all, the bill won't come due for years or decades. Between then and now, I suppose we'll hide under some coats and hope that somehow everything will work out.
On a related note, Jagadeesh Gokhale and Kent Smetters calculate that the present value of the fiscal imbalance for Social Security stands at more than $8.4 trillion and Medicare stands at more than $63.4 trillion.