Nov. 5 (Bloomberg) -- U.S. state and local government pensions are underfunded by $1 trillion and may need to seek federal guarantees for their debt, according to Orin Kramer, chairman of New Jersey’s Investment Council.

Kramer, who is general partner of the hedge fund Boston Provident Partners LP and a Democratic fundraiser, also said he expects New Jersey Governor Jon Corzine, who lost re-election Nov. 3 to Republican Christopher Christie, to take a “significant role” with a financial company after he leaves office early next year. Corzine was formerly co-chairman of Goldman, Sachs & Co.

Pension underfunding eventually will make it impossible for some governments to raise money in bond markets and will require federal intervention through explicit or “implied guarantees” of municipal debt, Kramer, 64, said in an interview today at Bloomberg News headquarters in New York.

“The collective deficits should not be and will not be overcome by an aggressive investment strategy,” Kramer said. “I think that actually, ultimately, the severity of the problem will become publicly visible and you’ll have more entities that will have difficulty accessing the bond markets.”

Funds Lose Billions

The 100 largest U.S. public-employee pension plans had assets of $2.2 trillion as of June 30, down from $2.8 trillion a year earlier, according to a U.S. Census Bureau report. The 21 percent decline compared with the 28 percent fall in the Standard & Poor’s 500 Index during the worst recession since the Great Depression.

New Jersey’s investment council oversees the state’s $68 billion pension fund, whose assets fell 14 percent in the fiscal year ended June 30.

Kramer, who became chairman of the council in 2002, said he spoke with Corzine yesterday after the first-term Democrat’s loss. Corzine got into politics in 2000 when he successfully ran for U.S. Senate. He was elected governor in 2005.

“That life is over,” Kramer said of Corzine’s political career.

Robert Corrales, Corzine’s press secretary, didn’t immediately return a message.

To contact the reporter on this story: Dunstan McNichol in Trenton at dmcnichol@bloomberg.net

Last Updated: November 5, 2009 16:02 EST