State and local pension plans have taken on additional risk, since the market crashed in 2007-2008, in an attempt to return their assets to pre-crash levels. According to a report by the Pension Research Council, these funds lost nearly $1 trillion in assets and have yet to recover their former value. Average pension funding levels fell from 85 percent in 2007 to 77 percent in 2009, the report said.

"Since public pension plans generally assume an 8 percent return on assets, this implies that, even today, plan assets are more than 25 percent below levels projected as of 2007. Indeed, even if public plans returned to 11.5 percent annually going forward, it would take them until 2020 to catch up to asset levels projected prior to the financial crisis," the report stated.

To make up some of this deficit more quickly, many plans have increased contributions for employers and participants, helping assets catch up more quickly with projected liabilities. Some states have attempted to reduce the generosity of benefits, particularly for new hires but, in some cases, for current employees and retirees through reductions in post-retirement cost of living adjustments. Most have increased their risk within the plans.

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