If you read only one article about public sector pensions, read this one.

Girard Miller has an excellent piece from January 2012 in Governing magazine  (Pension Puffery: Here are 12 half-truths that need to be debunked in 2012) that gives a very honest and straightforward information about public sector pensions. 

The most telling passage of the piece is included under Half-truth #4: "Experts consider 80 percent to be a healthy funding level for a public pension fund.  Mr. Miller writes:

Until the last recession, respectable and world-wise actuaries would tell you privately that when a pension system gets its funding ratio above 100 percent, there is a political problem. Employees, unions and politicians suddenly become grave-robbers who invariably break into the tomb to steal enhanced benefits and pension contribution holidays. So these savvy advisors historically have tolerated modest underfunding, based on their recurring past experience with the forces of evil in this business. They figured the ideal public plan would drift between 80 to 100 percent funding over a market cycle, and nobody would be hurt if the plans were a "little bit underfunded" in normal times.

So actuaries not only have to manage pensions, they have to defend them against those who would snatch away any surplus.  Mr. Miller kindly refers to this as a political problem, but it is actually a greed problem.  This goes a long way to explaining how we got to where we are now.

It never made any sense that PSPRS implemented the DROP just as the dot-com bubble was bursting, but this was also at a time when PSPRS was running a surplus.  The surplus that might have been used to offset impending losses was instead used to enhance benefits.  This may be speculation, but it certainly seems to fit the scenario Mr. Miller describes.

Read the whole article.