Pension Woes Go Public

You've seen the headlines over and over – one private company after another cutting pensions, saying they can't afford the big payouts.

It's not just the private sector saying that anymore. Government employers are starting to say they can't meet their pension obligations either – not without some help from taxpayers – and it is a problem that is waiting to explode across the country, reports CBS News correspondent Trish Regan.

It's considered one of the most beautiful places in the country, but beneath San Diego's picture perfect surface lies a financial disaster.

"We're on the verge of bankruptcy. It's one of the things that I won't rule out," says Mayor Jerry Sanders.

Other communities across the country are just as vulnerable. For years, San Diego promised city employees generous retirement benefits, but didn't set aside enough money to cover the bill.

Now, its pension plan is a staggering $1.4 billion in the red. Former officials have been indicted for allegedly hiding that shortfall and pension costs are eating up the new mayor's budget.

Mayor Sanders says about one third of the city's general fund budget is now going to have to fund the pension.

"And what that means is that services have to be cut," the mayor says

So, there's no money to replace aging water and sewer lines and the city is cutting staff.

"We've done all those things you have to do when you start tightening your belt," Mayor Sanders says.

It's something more and more governments may have to consider: States are piling up pension debt, heading them towards a potential pension crisis.

Nationwide, state and local government pensions are underfunded by more than $450 billion. Twenty-eight states are less than 80 percent funded. Of those, Michigan and Massachusetts owe more than 15 billion, Ohio nearly 30 billion, and Illinois – the worst off of all – 39 billion.

"Legislators for years said, 'eh, we'll just defer funding that pension liability off into the future,'" says Ralph Martire, who runs the Center for Tax and Budget Accountability, a non partisan tax policy center.

Martire says state and local governments promise hefty retirement benefits to their employees like teachers and firefighters as a way to compete with the private sector.

"They offered a decent pension primarily to attract high quality people to public sector jobs. That was the deal made," he says.

But, on the funding side, Martire says the government did not keep its end of the deal.

States have to fund these plans, because by law, they cannot scale back on benefits already offered.

Who's going to pay for this?

"The short answer is," Martire says, "at some point, taxpayers are going to have to pay."