New Jersey's ill-fated pension reform plan is history. As 2006 drew to a close, the governor and legislature, hoping to pay for property-tax reduction through pension plan reforms, failed to come to an agreement--much to the relief of thousands of state workers, unionized and otherwise, who marched on Trenton to make known their concerns about benefit adjustments.

Despite the stalemate in New Jersey, benefit issues will be front and center across the country, in states that have collective bargaining states as well as those that do not. With lower unemployment and renewed union strength at the polls, employees are in a strong bargaining position. At the same time, governments are even more aware of their fiscal position. Although their revenues have grown with the economy expanding, their costs and liabilities continue to grow faster. This sets the stage for high friction ahead.

One of the issues that surfaced in New Jersey and will most likely be an issue elsewhere is retirement age. The traditional retirement age is 65, and the Baby Boom generation is expected to outlive that age by 21 years. Many states and localities allow their employees to retire at 55 or less, which means those governments are looking at an extended actuarial payout period with fewer years to sock away the funding it requires.

Clearly, we need to adjust the normal retirement age for increased life expectancy. Then public employees and employers will both have more years to contribute to their retirement plans, thus increasing the plans' assets and reducing their liabilities.

Raising the retirement age is simply realistic. It won't solve all the problems of our retirement systems' finances, but it must become a cornerstone of public retirement system reform.