Individuals' 401(k)s aren't the only investment portfolios taking a beating during the current financial meltdown. Public pensions have also been whacked by the market collapse.

Because taxpayers must ultimately guarantee the solvency of these pension programs, they could be expected to pay up if markets don't stage a rebound that lasts. Which is why public pension managers should be prepared to push for reforms that will limit that liability.

The Colorado Public Employees' Retirement Association investment assets have crashed in recent months, plummeting from $41 billion on Jan. 1 to $31 billion on Oct. 15, more than wiping out solid gains of the past two years.

The losses also suggest the pension fund will be woefully underfunded even after the markets turn around.

PERA's board will meet Friday, and there's no "action item" on the agenda calling for steps to respond to the market collapse. Even so, the 2009 legislature may have to modify benefits or contributions.

Lawmakers in 2004 and 2006 beefed up the pension system in several ways - trimming benefits, raising the retirement age for new hires and mandating higher contributions from employees for several years - as well as hiking the contribution from some public employers.

But lawmakers didn't go far enough. PERA was 75.1 percent funded at the end of last year. Based on the market value of its assets in October, if PERA's $52.5 billion in liabilities have held steady since Jan. 1, the pension may be less than 60 percent funded now.

And based on an estimate reported in the Colorado Springs Business Journal, to compensate for recent losses PERA would have to realize annual average returns of 10.9 percent over the next 40 years to be 100 percent funded by 2050.

We don't like those odds.

Bigger reforms - including some rejected in 2004 and 2006 - should be in order.

Ideally, all new hires should be moved to a 401(k)-style defined-contribution plan. We don't expect this to happen given the present political climate, but such a change eventually would eliminate the need for periodic cash infusions as well as taxpayer exposure to potentially gargantuan unfunded liabilities.

More realistically, the temporary increases in employee contributions enacted in 2006 should become permanent. That legislature boosted the 8 percent contribution from most employees by 0.5 percent a year for six years. The contribution rate is set to return to 8 percent in July 2013. It shouldn't.

Then, the full retirement age for anyone with 30 years of service other than public-safety workers should rise from 55 to 60. The earliest anyone who's not disabled can collect Social Security is 62; public employees shouldn't get such a big, costly head start over their private-sector colleagues.

Finally, the legislature should have the authority to reduce benefits if the system is actuarially unsound - say, less than 90 percent funded. Lawmakers need the flexibility to boost solvency long before massive injections of cash are needed.

Colorado is fortunate because the legislature must approve modifications in benefits or contributions. That's not the case in California, for instance, where the board of its Public Employees' Retirement System can increase benefits or contributions on its own.

PERA faces no immediate cash crunch. But last year, before the swoon, PERA projected the pension would go broke by 2038 if it achieved a 7 percent return on investment.

The 2009 legislature needs to take some significant steps to prevent fiscal disaster while protecting taxpayers from a major blow.