States are proposing new "mega' systems that will include large processing volumes and wide-ranging interfaces with the public. Massachusetts' Health Connector is a good example. Gov. Arnold Schwarzenegger want to open CalPERS to the public. Other states will follow in coming years.

As you have probably heard, the states and localities are facing pension shortfalls totaling into the hundreds of billions of dollars. In fact, with many public employees approaching retirement age, pension obligations might be the single biggest fiscal problem facing the public sector. However, one state--California--is trying to rise above the fray. While most jurisdictions are just beginning to consider cutting the pension obligations to current and future retirees, the Bear Flag Republic is considering opening its CalPERS fund to employers who cannot afford to provide retirement benefits to their workers.

Historically, the market for government-to-employees (G2E) solutions has been little more than a niche--usually an add-on to larger government-to-citizen (G2C) market for e-government solutions. Employee benefits management systems have been modest, back-end oriented affairs. However, opening them up the public would involve significant investment in interfaces for tens of thousands of employers and millions of workers.

If California is able to shore up its pension fund for another decade or two--as well as raise the overall level of savings of the state's private-sector workforce--with this approach other states will surely follow. During an economic downturn state and local governments often make matters worse with layoffs as well as pay and pension cuts that only further depress the local or regional economy. Such measures also make it harder for agencies to attract skilled workers down the road.

Vendors in the benefits management space should keep a close eye on CalPERS.