It’s no surprise that pension plans are taking a hit in terms of reserves, but state and municipal pension plans face additional stress.  State and municipal pension plans include teacher’s retirement, firefighters, and local government employees, such as police officers.
According to Northern Trust, due to the under performance of the market in 2008 pension plans lost an average of 30% or about $900 billion.  During the first two months of 2009, pension plans reported a loss of another $200 billion.  Some municipal funds may have lost more lost even more since the smaller funds seem to have taken a larger hit than the larger funds.
This means different things to different industries.  State plans in general run at about 60-70% of funding.  Now it is reported that the state funds only have half of the 60-70% capability.  This is big trouble for employees whose occupations fund the state retirement systems. 
Some of these funds have been forced to sell off assets at huge discounts to cover pensions, but the question is how long can this continue?  There seems to be no way that the federal government cannot intervene if these pensions are to survive, however that remains to be seen with the passing of the Obama budget and/or the states use of the stimulus package.
One unfortunate and unpopular solution is to cut benefits in retirement packages.  Another solution also unpopular is to raise the retirement age.  These are all very unpopular solutions; no states want to cut their employees pensions.
However, most employees do not realize the extent of seriousness of the situation.  Most pension funds base their funding levels on an assumption of an annual return of 8 per cent, but in the decade to 2004, the average return was only 6.5 per cent.  In 2008 and 2009, this number is expected to diminish further.