So-called defined-contribution plans such as a 401(k) set the amount employers and employees pay into investments, and, unlike traditional pensions, don't guarantee a set return for retirees. Some plans let workers choose investment strategies, and they assume the risk -- rather than the government.

In 2004, 80 percent of public employees relied on a defined-benefit pension plan. In private enterprises, 64 percent were in defined-contribution plans, according to the Center for Retirement Research at Boston College.

Michigan's switch shaved as much as $4.3 billion from its obligations, according to a study by the Mackinac Center for Public Policy in June.

The Bloomberg ranking didn't include Hawaii and showed only Wisconsin's pension-funding ratio for 2009 because of insufficient data. The analysis combined each state's pension plans to calculate an overall funding deficit.

Pension costs consumed an average 3.8 percent of state and local government operating budgets in 2008. That share may grow to as much as 12.5 percent by 2014 in places with large unfunded liabilities, according to an October 2010 report by the Center for Retirement Research.

Since 2009, 40 states have cut benefits, made employees pay more for retirement or both, said Ronald Snell, senior fellow at the National Conference of State Legislatures.

Still, seven states this year rejected plans to switch to 401(k)s, Snell said. Among them was Oklahoma, where lawmakers decided conversion was too expensive, said Tom Spencer, executive director of the Public Employees Retirement System.

Oklahoma's pension funding was in a three-way tie for fourth lowest, at 55.9 percent, along with Louisiana and West Virginia, according to Bloomberg data.

Spencer said the funds were eroded by the stock market plunge and the Legislature's failure to fund benefit increases it approved in the 1990s. Lawmakers this year eliminated cost- of-living increases and raised the retirement age. Those changes will reduce the liability by one-third, Spencer said.

In Michigan, about 19,000 employees covered by the old pension plan pay nothing into it. For the 25,000 in the 401(k) plan, the state places a minimum 4 percent of their salaries into their fund. If they contribute an additional 3 percent, the state matches it.