TRENTON - For years, New Jersey's underfunded pension system has been the simmering problem no politician dared to solve.

But with a pension-fund shortfall approaching $30 billion as baby-boomer public employees are poised to begin retiring, the state's next governor has little choice but to confront a pension puzzle that experts say has no painless answer.

The two multimillionaire businessmen running for the state's top job, Democrat Jon S. Corzine and Republican Doug Forrester, both say they are prepared to end more than a decade of pension mismanagement.

The state has contributed little to its pension system since 1997, when then-Gov. Christie Whitman borrowed nearly $3 billion to keep the system afloat and invested it in the stock market. After a few years of blockbuster earnings, the state's investments plummeted by more than $25 billion and have yet to recover.

To return the system to solvency, the state would have to contribute $1.6 billion to the pension fund next year, with subsequent payments building even higher - to $2.5 billion by 2010. By that year, the state's Treasury Department estimates, pension and health-care costs will consume more than 20 percent of the state's budget, and the state will be paying more for retired employees than for current ones.

Corzine pledges to make these contributions on a "steady and consistent basis" after a "complete audit of pension systems and a top-to-bottom review of the state budget." Forrester, who ran the state's pension investments in the 1980s under Gov. Tom Kean, promises to "clean up the huge mess in the system I worked for years to protect."

But neither businessman will commit to the hard changes necessary to reform the sputtering system.

That is because, says Dallas Salisbury, president of the Washington-based Employee Benefits Research Institute, the dilemma is New Jersey's equivalent of Social Security: "Either you raise taxes or you reduce benefits. There's only two ways to do this."

After calling for an end to "this madness of entitlement spending" in his budget address in March, acting Gov. Richard J. Codey appointed a Benefits Review Task Force chaired by Philip Murphy, a retired Goldman Sachs Group executive. The task force's report will be released shortly after the Nov. 8 election.

The goal, Murphy says, is to give the next governor a blueprint for fixing the system - "and leave him with the tough job of executing it."

"What we have is a crisis, a creeping problem that grows every day," Murphy says. "Just making a contribution to the pension system is no longer good enough. We're going to suggest recommendations that will likely involve pain for all parties."

There are some who exploit the state's pension system, working multiple jobs to secure large retirement benefits calculated using the three highest-paying years of service. Ending these abuses known as pension "boosting, tacking, or padding" is the easy part, Murphy says.

"Most people aren't getting rich off the state," Murphy said. "These benefits have been collectively bargained - consenting adults have agreed upon them."

If the next governor attempts to trim those benefits - which Treasury Department studies have found are more generous than other states' - powerful public-employee unions say they're ready for a fight. Codey's moratorium ending pension-sweetening legislation alone brought a 5,000-member protest to the Statehouse steps in May.

"Our concern is that the state's way of getting out of a problem of its own making will be on the backs of employees who have served the state," said Jim Marketti, president of Communications Workers of America Local 1032. "If that's the case, we'll put feet on the street.

"I would suggest instead that the state raise income taxes on the rich people who have had a party ever since Whitman gave them a break."

Both candidates have shied away from that suggestion; Forrester has signed a no-new-tax pledge, and Corzine has said any tax increases would be a "last resort."

While Corzine allows that he might consider changing the retirement age for new state workers as a long-term fix, Forrester would only commit to "better allocating resources" and "finding efficiencies" in the system.

Other states offer few examples of reform.

Nationally, state and local pension funds are underfunded by $600 billion to $1 trillion, said Orin Kramer, a hedge-fund investor who runs New Jersey's State Investment Council.

"New Jersey may be worse off than most, but this problem is not unique to New Jersey," Kramer said. "The whole system requires an extended treatment program - because there's a year after next year, and it's not going to get better."

Ron Snell, a pension watchdog at the National Conference of State Legislatures, said Illinois, Massachusetts, Virginia, New York and California were only slightly better positioned than New Jersey. Cities such as San Diego and Houston have teetered on the brink of bankruptcy because of pension problems.

"Probably the way states will go is to make marginal changes in the benefits they offer to employees while increasing their own contributions to the system," Snell said. "There are really few options."

California Gov. Arnold Schwarzenegger was stung by fierce public backlash after he proposed swapping the state's defined-benefit retirement plan - a pension - to a defined-contribution plan, such as a 401(k). Schwarzenegger has since dropped the plan, but Alaska has decided to make that switch, Snell said.

Senate Minority Leader Leonard Lance (R., Hunterdon) says Schwarzenegger's idea might be right for New Jersey. He notes that "401(k)s are becoming the norm in the private sector and the public sector should reflect that." Unions oppose that idea, and Corzine and Forrester have both distanced themselves from it.

But Jim Hughes, dean of Rutgers University's School of Public Policy, says it was time for big ideas to solve New Jersey's shaky finances. A 401(k) system may not be the answer, but the state's next governor will have to act boldly to fix the "perfect economic storm" caused by the pension system and other problems.

"In Trenton, the desire is always for current consumption and immediate gratification - there's a real reluctance to invest in the future," he said. "The state has no choice now but to change."

To see how one state, California, reports on performance of alternative investments, go to its public employees' retirement system Web site via http://go.philly.com/pensions