Pension reform continues.

State and local governments across the country are revising their pension plans to make them more sustainable. From 2009 to 2011,43 states made significant changes to their plans, and 10 states made major structural changes to their plans in 2012, according to a research report from the Urban Institute. States including Kentucky, Tennessee, and Illinois have made more recent changes.

Largely because the 2007 financial crisis depleted their reserves, many state and local plans face a funding gap that could require state and local governments to increase their payments to pension funds, raising pressure on government budgets and threatening to crowd out other public services or lead to tax hikes. The paper, titled Reforming Government Pensions to Better Distribute Benefits, suggests options that could distribute retirement benefits across the public-sector workforce more fairly and help governments recruit and retain productive employees. Options include changing the benefit formula in traditional retirement plans, pursuing alternative plan designs, and the controversial possibility of extending Social Security to all government employees (many of whom are not covered currently).

The most promising pension reforms would not improve benefits for every public-sector...