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As states and localities grapple with reforming their pension plans in the face of escalating costs,  experts say one of the biggest misconceptions about the system is that pensions are making retirees rich.

“Since the 1980s we as a nation have begun to view retirement [plans] as a wealth creation vehicle and I think we need to get back to viewing it as retirement insurance,” Keith Brainard, research director for the National Association of State Retirement Administrators, said during a Wednesday panel discussion at Governing’s Outlook in the States & Localities conference in Washington, D.C.

The truth is, a few well-compensated retirees have stolen the spotlight from the masses, panelists said. Meredith Williams, executive director of the National Council on Teacher Retirement, recounted a story in which a resident had heard that more than 2,000 people in his state were receiving pension benefits of $200,000 or more annually. Before taking that up with that resident’s legislator, Williams went back to check the numbers – the actual total was two people, not 2,000.

“We have become subject to all these urban legends and fiction becomes fact when it becomes reported a few times,” he said, adding later that most retirees are not well-to-do. “They don’t make a lot of money. You can’t buy the Harley, the fast boat and the Winnebago the day you retire.”

He said states and localities must take into account that heavy cuts into retiree plans could end up straining the social welfare system if those people cannot reasonably sustain themselves in retirement. Already today, more public sector employees aren’t retiring when they hit their pension age.

“There’s a new word for retirement. It’s called work,” said Nancy LeaMond, executive vice president for AARP State and National Group during a separate Wednesday panel discussion on baby boomers.

Pennsylvania State Rep. Chris Ross said that in his state, which has one of the oldest average populations, many workers are retiring and finding another job “because their pension and social security just isn’t enough.”

“I think as a country we really are coming to terms with the fact that we really are facing a crisis,” he said. “I do think people are scared. There’s going to be a bit more caution about retiring.”

Nearly every state has tweaked their pension plan in recent years and more serious reform is likely on the way. But the gamble for elected officials is that the effects of such long-term reform will only be revealed, well, in the long-term.

Still, taking action now can have more immediate effects. For one, ratings agencies are paying more attention now to pension liabilities when assessing states’ and localities’ economic health, said John Sugden, director of U.S. Public Finance for Standard & Poor’s Rating Services.

“Underfunding ... or where there isn’t sufficient action on pension reform, it has affected our view of the credit negatively,” he said.

He pointed to Illinois, which S&P downgraded this month: “To say it was downgraded solely because of pensions is incorrect. But certainly failing [to address] pensions was one of the big drivers.”