State and local government workers receive generous defined-benefit pensions that guarantee specific monthly payments to retirees for life. In theory, these pensions are paid for by investing contributions from government agencies and their employees, and using the proceeds to pay the promised benefits after employees retire.
In reality, pension officials and politicians have increased benefit payouts and lowballed contributions. As a result, they now have inadequate funds to pay the promised benefits. This unfunded pension liability puts taxpayers on the hook to make up the difference between promises and assets.