Aside from perhaps the question answering itself, Fortune/CNN drills into the case of New Jersey, a state that makes California seem well-governed:
In June 2008 the state estimated that the plan - one of the nation's largest, covering teachers, state employees, firefighters, and police - had $34 billion less than it needed to meet its obligations. Since then the market value of the plan has dropped from $82 billion to $56 billion (a new estimate of underfunding is due in July).
Wha happen? [sic] The pension fund gambled on dot-com stocks, hedge funds, and other equity plays. The state cut contributions based on formulae that assumed such nonsense as an 8.75 percent annual return. Then, against that backdrop, this:
Meanwhile, the obligations keep mounting: Even while they were neglecting pension contributions, New Jersey politicians were sweetening the pot. In 2001 benefits for the state's two largest groups of workers, government employees and teachers, were increased by 9%, creating an additional $4.2 billion in liabilities. In 1999 the state approved a "20 and out" measure that allowed firefighters and local police to collect pensions equal to 50% of their pay after 20 years of service - a perk previously available only to the state police. Benefits added since 1999 have increased liabilities by more than $6.8 billion, according to official estimates.