Standing before hundreds of state employees at a union meeting in late May, Gina Raimondo warned that Rhode Island's pension system could run out of money unless big cutbacks are made.

Then something unusual happened. The workers loudly applauded the 40-year-old Ms. Raimondo, who was elected in November to oversee Rhode Island's $6.4 billion pension fund. "This system as designed today is fundamentally unsustainable, and it is in your best interest to fix it," she said.

Across the nation, state officials wrestling with budget woes are pushing through cuts in public-sector pensions, saying there is no alternative to immediate financial pain. Ms. Raimondo, a Democrat, is taking a softer approach.

Instead of breaking ranks with labor allies to win a round of pension cuts now, as elected officials in New Jersey did recently, Ms. Raimondo has been trying for months to persuade workers, unions and taxpayers to support a top-to-bottom overhaul of Rhode Island's pension system that she says will fix the plan for decades to come.

If she succeeds, the tiny state will plug one of the most gigantic pension holes in the U.S. If she fails, the financial hole could get even deeper. 

...

To keep the pension plan afloat, Ms. Raimondo, a former Rhodes Scholar, says Rhode Island might need to go even further than other states have in making pension changes. She has floated the idea of converting a portion of guaranteed pension payments into 401(k)-style accounts or suspending cost-of-living adjustments to retirees.

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