Annual Pension Report Text

Overview

Reason Foundation’s 2024 Pension Solvency and Performance Report provides a comprehensive overview of the current status and future of state and local public pension funds. As the nation navigates another year marked by significant economic fluctuations and demographic shifts, this report aims to assess the resilience and adaptability of U.S. public pension systems. This analysis ranks, aggregates, and contrasts plans by funding health, investment outcomes, actuarial assumptions, and many other indicators.

This report marks the inaugural edition of an annual series by Reason Foundation’s Pension Integrity Project, dedicated to addressing the problem of unfunded public pension liabilities that threaten the fiscal stability of many states, cities, and counties. The objective of this analysis is to deliver clarity and foster a deeper understanding of the challenges confronting U.S. public pension systems, public workers, state and local governments, and taxpayers. The main findings are prominently highlighted in bullet points at the beginning of each section.

Unfunded Pension Liabilities

Public pension systems in the U.S. have seen a significant increase in unfunded liabilities, particularly during the Great Recession. Between 2007 and 2010, unfunded liabilities grew by over $1.11 trillion—a 610% increase—reflecting the financial challenges faced during that period. Despite some improvements in funding ratios over the last decade, these liabilities have continued to rise, underscoring ongoing financial pressures.

As of the 2023 fiscal-year end for each pension system, total unfunded public pension liabilities (UAL) reached $1.61 trillion, with state pension plans carrying the majority of the debt. The median funded ratio stood at 75%, but stress tests suggest that another economic downturn could increase the UAL significantly, potentially raising the total to $2.83 trillion by 2025.

Funded Ratios of Public Pensions

The funded ratio of public pensions, which indicates the percentage of promised benefits that are currently funded, has experienced considerable fluctuations. After peaking at 94% funded in 2007, the funded ratio of U.S. public pension systems fell to 63% during the Great Recession. Although funded ratios have recovered somewhat, they remain susceptible to market fluctuations.

A stress test scenario for 2025, assessing the impact of a 20% market downturn, indicates that the average funding level of public pension plans could fall to 60%. This could lead to critical underfunding for many pension plans, raising concerns about their ability to meet future obligations.

Changes in Investment Strategies

Over the past two decades, investment strategies of public pension funds have shifted notably. Allocations to traditional asset classes, like public equities and fixed income, have decreased while investments in alternative assets such as private equity, real estate, and hedge funds have increased. This shift reflects a strategic move for pension systems trying to achieve higher investment returns in a challenging market environment.

By the reported 2023 fiscal-year end for each pension system, public pension funds managed approximately $5.07 trillion in assets, with a significant portion now invested in alternative assets, such as private equity/credit and hedge funds. While these alternative investments may offer the potential for higher returns, they also introduce greater complexity and risk.

Pension System Investment Performance: Overly Optimistic Assumptions, Underwhelming Returns

Public pension funds have faced challenges meeting their assumed rates of return (ARRs). Over the past 23 years, the average annual return has been 6.5%—well below what plans had assumed. The average assumed rate of return for public pensions has been gradually reduced from 8.0% in 2001 to 6.87% in 2023. Failing to meet their overly optimistic assumed rates of return has contributed to a large increase in unfunded liabilities, requiring additional pension contributions from state and local governments to maintain funding levels.

Investment returns themselves have varied widely, with public pension plans posting solid gains in 2021 (25.3%) contrasted with large losses in 2009 (-13.0%) and 2022 (-5.0%). This volatility between expected and actual returns has created budgetary challenges for employers.

Employer Contributions

As unfunded liabilities have grown, the burden on employers—primarily state and local governments—has increased. Employer contributions to public pensions have risen steadily since 2019, driven by the need to address rising amortization costs associated with unfunded liabilities. In contrast, employee contributions have remained relatively stable, placing more financial responsibility on government budgets.

Despite these increasing contributions, many pension plans continue to operate with negative cash flows, where benefit payments exceed contributions. However, some progress in recent years suggests that pension managers are beginning to address these financial challenges more effectively.

Conclusion

Public pension systems face significant challenges as they navigate rising unfunded liabilities, variable investment returns, and increasing financial demands on government budgets. Without meaningful pension reforms and more realistic assumptions about future investment returns, many public pension plans may encounter further financial difficulties in the years ahead.

This report was produced by Reason Foundation’s Pension Integrity Project—an initiative to conduct research and provide consulting and research insight about the public pension challenges our nation grapples with.

Authors: Ryan Frost and Mariana Trujillo

Data Analysis: Truong Bui, Jordan Campbell, and Steve Vu

Funding Health and Risk Assessment

Summary of Findings:

The great spike in unfunded liabilities: Unfunded liabilities grew the most after the Great Recession, rising by around $1.11 trillion, a 610% increase between 2007 and 2010.
Marginal gains in the last decade: An improvement in the funding ratio is observed at the same time as unfunded liabilities grow from 2010 - 2023.
Market-to-market valuations are more volatile: The MTM aggregate pension funded ratio reached its all-time-high and all-time-low in four years, following the Great Recession’s tides to achieve 94% funding in 2007, and falling to 63% in 2009.

In 2023:

The total unfunded liabilities in 2023 was $1.61 trillion, with $1.42 trillion (88% of the total) held by state plans and $188 billion (12% of the total) held by local plans.
The national aggregate funded ratio in 2023 was 76% and the median funded ratio was 75%. The median state plan was 78% funded, while the median local plan was 71% funded.
Stress testing results indicate that a recession could double unfunded liabilities, rising from the forecasted $1.45 trillion in 2024 to $2.83 trillion in 2025.

Funded Status and Aggregate Unfunded Liabilities

Figure 1: Trends in Funded Ratios and Unfunded Accrued Liabilities

This chart compares aggregate historical unfunded liabilities and funded ratios held by public pensions based on the historical Market Value of Assets (MVA) from 2001 to 2022. It also includes modeled unfunded liabilities estimated for 2023 and 2024 and a -20% market return stress test for fiscal year 2025.

The national aggregate funded ratio for public pensions in 2023, based on MVA, is 76%, showing relative stability compared to 2022. However, this represents a decline of 9 percentage points from the historical high in 2021, driven by market gains that year. Similar to patterns observed after the Great Recession, the rise in interest rates and abrupt market corrections in 2022 erased most of 2021’s gains, bringing the aggregate funded ratio back to levels observed during the peak of the 2010s.

Given the substantial impact of market downturns on the rise of unfunded liabilities, we simulated a -20% market return for fiscal year 2025 to assess the resilience of pension plans to another “Great Recession”-type shock. This stress scenario indicates that the average funding level of U.S. pension systems could fall to 60%.

Public pensions did not always have unfunded liabilities. As illustrated in Figure 1, the $1.61 trillion in pension debt reported by public pension systems in 2023 started at the turn of the century and exploded post-Great Recession, with a notable surge between 2007 and 2009. From 2007 to 2010, unfunded liabilities increased by $1.11 trillion—a 610% rise over just three years.

Since then, funded ratios have fluctuated around 70%-80%, but unfunded liabilities have continued to rise. Between 2011 and 2023, unfunded pension liabilities have grown by 45%.

Examining 295 public pension plans from 2011 to 2023 reveals a paradox: there is a simultaneous improvement in funding status and growth of unfunded liabilities. This phenomenon occurs because pension systems have expanded their total asset and liability pools over time. As liabilities grow, even if the funded ratio improves, the absolute dollar amount of unfunded liabilities can rise, reflecting the larger scale of the pension system.

The Gap Between Assets and Liabilities

Figure 2: Growth of Market Value of Liabilities and Actuarial Accrued Liabilities

This chart analyzes the aggregate assets (green) and actuarial accrued liabilities (red) of public pension funds from 2001 to 2023, with projections for 2024 and a stress test simulating a -20% market return for 2025 (as indicated by the gray bar).

A significant share of the gap between the value of assets and accrued liabilities lines on the chart results from recent readjustments to liability discount rates, which have increased their present value (see section II. Discount Rates).

The chart also reflects the significant volatility in pension assets, particularly during market downturns. The stress test for 2025, which models a -20% market return, shows that such a scenario could further deepen the funding shortfall, potentially pushing many plans into critical underfunding territory.

Unfunded Liabilities by State and Local Plans

Figure 3: Distribution of Unfunded Liabilities Across State and Local Pension Plans

This chart illustrates the distribution of unfunded liabilities across state and local pension plans. It includes historical data from 2001 to 2023, estimates for 2024, and a -20% investment return projection for 2025. State pension plans are depicted in gray, while local plans are shown in orange.

State plans hold the largest share of public pension unfunded liabilities. The total unfunded liabilities in 2023 was $1.61 trillion, with $1.42 trillion (88% of the total) held by state plans and $188 billion (12% of the total) held by local plans. This represents a 71% increase from 2021, as the market corrections of 2022 erased most of the market gains observed during 2021.

Public Pension Funded Level Distribution

Figure 4: Funded Ratio Distribution of Public Pension Plans (2023)

This chart displays the distribution of funded ratios for public pension plans in 2023. For plans that have not yet published their FY 2023 reports, estimates are used. Each bubble represents a unit (either a state or a particular plan, depending on the setting chosen), with the size of the bubble corresponding to asset size.

Most states’ pension plans have funded ratios clustering around 70% to 90%, with a few states above 100% and some even below 50%. However, just one bad year of investment returns (our stress scenario for 2025) shows most plans would converge in the 55%-65% range.

Discount Rate Adjusted Unfunded Liabilities

Figure 5: Effect of Discount Rate Changes on Actuarial Accrued Liabilities (2023)

This chart examines how adjustments to discount rates influence the calculation of unfunded liabilities in public pension plans. Figure 5 illustrates the impact of applying different discount rates to Actuarial Accrued Liabilities (AAL) for 2023.

On the top of the chart, we see the “Current AAL,” which is $6.68 trillion. This represents the liability calculated using the plan’s existing discount rate (the national average is 6.87%). The current unfunded liability based on MVA is $1.61 trillion, and the funded ratio is 76%.

This chart also displays how the Actuarial Accrued Liability (AAL) and Unfunded Accrued Liability (UAL) changes under three different discount rates:

6% Discount Rate: The AAL increases to $7.38 trillion. The UAL increases to $2.32 trillion, and the funded ratio decreases to 69%. This reflects a more conservative estimate, as a lower discount rate means future liabilities are valued more highly, leading to a larger AAL.
6.5% Discount Rate: The AAL increases to $6.96 trillion. The UAL increases to $1.90 trillion, and the funded ratio decreases to 73%.
7% Discount Rate: The AAL decreases to $6.58 trillion. The UAL decreases to $1.52 trillion, and the funded ratio increases to 77%. The liabilities drop because 7% is higher than the national average discount rate of 6.87%.

Funding Health Data

This table presents data for all pension systems back to 2001, displaying the Actuarial Accrued Liability (AAL), Market Value of Assets (MVA), Unfunded Actuarial Liability (UAL), and the Funded Ratio. Users can search by year and state, and the chart includes options to download the data for further analysis.

Investment Performance

Summary of Findings:

Volatile investment returns: The average annual returns of public pension funds have shown significant volatility from 2001 to 2023, with notable highs in 2021 (25.3%) and significant lows in 2009 (-13.0%) and 2022 (-5.0%).
Challenges meeting assumed rates of return: Over the past 23 years, public pension funds have averaged a return of 6.5%, consistently falling short of their assumed rates of return (ARRs), which have also been decreasing from 8.0% in 2001 to 6.87% in 2023.
Excess return underperformance: 99% of public pension plans have failed to meet their average ARRs over the past two decades and 86% of them have failed to meet even their current ARRs over the same period, leading to increased financial strain and growing unfunded liabilities.
Large discrepancy between actual and assumed returns: A visualization of return distribution shows that actual returns are often lower than ARRs, with a significant portion of plans achieving yearly returns below 5.5% over the past 23 years.
Benchmark comparisons: Public pension funds have consistently underperformed the S&P 500 and a 60/40 equity-fixed income benchmark over 5, 10, 15, and 20-year periods, as well as their own synthetic risk-adjusted benchmarks.

Investment Returns

Figure 6: Average Annual Returns of Public Pension Funds by Year

This chart is a time series of the average declared yearly rate of return for public pension funds (orange) since 2001. Upon selection, it can be overlapped with aggregated returns by states, or those achieved by individual plans.

In 2023, the plans in our sample have declared an average return of 7.2%. This national average can be compared to an individual state’s or pension system’s return for the same period.

The chart reveals the volatility of investment outcomes, with substantial fluctuations year over year. The most notable gains were recorded in 2021, with an average return of 25.3%, driven by exceptional market performance. However, this was followed by significant losses in 2022, with an average return of -5.0%, the third-worst performance in the past two decades. The worst years in the period were 2008 and 2009, with returns of -6.8% and -13.0%, respectively, reflecting the severe impact of the Great Recession.

Assumed Rate of Return and Historical Return

Figure 7: Yearly Average Assumed Rate of Return and 23-Year Average Return Rate

This chart illustrates the yearly average assumed rate of return (ARR) for public pension plans (black) alongside the national 23-year average return rate of 6.5% (yellow).

Public plans determine their assumed rate of return (ARR) based on an independent judgment of their assets and future market returns. This value is then used to discount and present the value of the retirement benefits owed to plan members (accrued liabilities), which determines the funding ratio of a plan—the ultimate measure of solvency and fiscal health for researchers, regulators, and bondholders. Overestimating market returns improves accounting optics, but leads to unrecognized underfunding and generating government debt–unfunded pension liabilities.

Public pension funds have faced significant challenges in meeting their assumed rates of return. On average, the actual rate of return over the past 23 years is 6.5%, far below the average assumed rate of return of 7.59% over the same period—leading the creation of unfunded liabilities.

As public pensions have been held to higher scrutiny, assumed rates of return have been rapidly declining in the past two decades, more closely reflecting realistic investment return forecasts. The average ARR in 2001 was 8.0%, while in 2023, it reached 6.87%. Pension plans have reached historically low assumed rates of return, with recent brusque revisions observed after the market downturn of 2022. Even still, the all-time low 2023 average of 6.87% is still incongruent with the past 23 years of pension investment returns.

Excess Returns

Figure 8: Distribution of Excess Returns of Public Pension Plans

This chart examines the annualized excess returns of public pension funds since 2001, defined as the differences between the actual average returns achieved by the funds and their assumed rates of return (ARRs), as depicted in Figure 7.

Funds that have outperformed their benchmark in the past 23 years are colored blue, and those who failed are colored in red.

Of the 226 plans in our database with full 23-year return data, 99% failed to meet their average ARRs over the past 23 years, and 86% failed to meet their current ARRs over the same period. This persistent underperformance is critical because it directly affects the financial sustainability of pension systems and the taxpayers who back them. When actual returns fall short of the assumed rates, the gap must be filled by increased contributions or by allowing unfunded liabilities to grow. Over time, this can lead to significant financial strain on the pension systems and the governments that sponsor them.

Actual Returns vs Assumed Returns Distribution (old name: “Return Histogram”)

Figure 9: Distribution of Actual Returns vs. Assumed Rates of Return

This chart compares the distribution of actual average investment returns achieved by public pension plans over the past 23 years (orange), the distribution of 2023’s assumed rates of return (ARRs) (blue), and the average ARRs over the last 23 years (red).

The visualization reveals a clear skew: actual returns tend to cluster below the ARRs, with the assumed rates of return historically— even after recent revisions—averaging significantly higher than what was actually achieved. This discrepancy highlights a persistent overestimation of expected investment gains by pension plans.

The spread of actual returns also demonstrates considerable volatility, with a broad range of outcomes that are not fully reflected by the narrower distribution of ARRs. Notably, a substantial proportion of funds has realized consistently low returns, with 17% of plans in our sample achieving average yearly returns below 5.5% over the past 23 years.

This stark contrast between expected and actual performance underscores a critical problem: pension plans have consistently overestimated gains while underestimating potential losses. The distributions are biased toward the upper end, failing to account for the lower end of actual investment returns, which has contributed to ongoing funding challenges.

How have pensions performed compared to the S&P 500?

Figure 10: Public Pension Fund Returns vs. S&P 500 Benchmark

This chart compares the investment returns of public pension funds against the S&P 500 over a 5-year, 10-year, 15-year, and 20-year time horizon. The figure plots the excess average returns of 282 public pension plans, with red dots representing individual fund performances and the black dashed line indicating the S&P 500 benchmark (zero excess return).

The analysis reveals that over the past 20 years, the average return for public pension funds has consistently underperformed the S&P 500. While the S&P 500 achieved an average return of 9.7%, 10.0% over this period, public pension funds achieved 7.8% returns over the same period—with 99.6% of public pension funds underperforming the S&P 500.

How have pensions performed compared to a simple 60/40 Equity-Fixed Income Portfolio?

Figure 11: Public Pension Fund Returns vs. 60/40 Equity-Fixed Benchmark

This chart compares the investment returns of public pension funds against a 60/40 equity/fixed-income index benchmark over 5-year, 10-year, 15-year, and 20-year periods. The figure plots the excess average returns of 282 public pension plans, with green dots representing individual fund performances and the black dashed line indicating the 60/40 index benchmark (zero excess return).

Over the past 20 years, most public pension funds have underperformed the 60/40 index benchmark. While the 60/40 index portfolio achieved an average return of 7.7% over this period, public pension funds averaged 7.8% returns–with 66% of funds underperforming the benchmark.

How have pensions performed compared to their risk level?

Figure 12: Public Pension Fund Returns vs. Synthetic Risk-Adjusted Benchmark

This chart compares the investment returns of public pension funds against a synthetic risk-adjusted benchmark, which accounts for each pension fund’s specific risk and return profile over 5-year, 10-year, 15-year, and 20-year periods. The figure plots the excess average returns of 282 public pension plans, with orange dots representing individual fund performances and the black dashed line indicating the synthetic benchmark (zero excess return).

Despite this tailored benchmark, many funds have not consistently met their risk-adjusted expectations. Over the past 20 years, most public pension funds still underperformed their personally tailored empirical benchmark—with 75% of funds underperforming the benchmark.

Investment Performance Data

This table presents data for all pension systems back to 2001 where available, displaying the assumed rate of return (ARR), yearly and rolling averages of returns, and investment performance against the benchmarks. Users can search by year and state, and the chart includes options to download the data for further analysis.

Asset Allocation and Projected Returns

Summary of Findings:

Shift in asset allocation: There has been a significant decrease in the allocation to traditional asset classes like public equities and fixed income, with a corresponding increase in alternative assets such as private equity, real estate, and hedge funds.
Preference for higher-risk investments: The shift toward alternative assets reflects a growing preference for higher-risk, higher-reward investments to meet challenging return targets.
- The allocation to public equities and fixed income decreased by a notable percentage, while the share of assets in private equity and other alternatives saw substantial growth.
- State and local pension plans collectively held approximately $5.07 trillion in assets in FY23, marking a significant increase since 2001. A large portion of these assets is now invested in alternative asset classes.
Higher return targets mean higher risk: As the target investment return increases, the probability of failure rises sharply, with a 50% chance of not meeting a 7% return within 10 years and even higher risks at 7.5% and 8.0%.
Longer investment horizons offer limited risk reduction: Extending the assumed investment period to 20 years significantly reduces the risk for lower return targets but has minimal impact on higher targets, indicating that time alone doesn’t mitigate the risks of ambitious returns.
Substantial risk even at lower assumptions: Even aiming for a 6.0% return carries a 40% chance of failure over 10 years, showing that pension systems face significant risks even at moderate target returns.

Asset Allocation

Figure 13: Evolution of Asset Allocation in Public Pension Funds

This chart analyzes the changes in asset allocation among public pension funds from 2001 to 2023, illustrating the shift in investment strategies over the past two decades. This analysis can be shown nationally or by each individual pension fund.

The data show a significant decrease in the allocation to traditional asset classes, such as public equities and fixed income. In contrast, allocations to alternative assets like private equity, real estate, and hedge funds have increased substantially. This shift reflects a growing preference for higher-risk, higher-reward investments to meet return targets that have become more challenging to achieve in traditional markets. As discussed in the ‘Investment Performance’ section, this gamble has yet to pay off.

In 2001, 89% of pension fund assets were held in public equities and fixed income. However, by 2023, the allocation to these traditional assets had dropped by 26 percentage points to 63%, with alternative assets now comprising a much larger portion of the portfolios. The share of assets in private equity, for example, increased from 4% to 14%, while real estate and hedge funds also saw significant growth.

State and local pension plans collectively possessed approximately $5.07 trillion in assets as estimated in FY23—a 140% increase since 2001. Of that, $2.15 trillion are held in public equities, $1.04 trillion in fixed income, $94 billion in cash, and $1.78 trillion in alternative assets—that is, $710 billion in Private Equity, $522 billion Real Estate, $323 billion Hedge Funds, $134 billion Commodities, and $94 billion in other alternatives.

Table: All Asset Allocation Data

This table presents data for all pension systems back to 2001 where available, displaying the percentage of total assets allocated to each asset class. Users can search by year, state, and plan, and the chart includes options to download the data for further analysis.

Return Rate Probability

This analysis presents the return probability distribution for public pension plans over the next 10 and 20 years. It is derived from target asset allocation data and capital market assumptions provided by the 2024 Horizon Actuarial Services survey, which accounts for expected returns, volatilities, and return correlations across various asset classes. For each pension fund, the expected risks and returns were calculated, followed by 10,000 random simulations to generate the probability distribution of returns for individual funds as well as for the aggregate of all pension funds.

Distribution of Simulated Returns for National Average Asset Allocation

Figure 14: National Simulated Return Probability Distributions Over 10 and 20 Years

This chart illustrates the simulated probability distributions of average returns for public pension funds over 10-year and 20-year periods. The blue distribution represents the 10-year horizon, while the red distribution represents the 20-year horizon. The dashed vertical line indicates the national average assumed rate of return (ARR) of 6.87%.

The graph shows that over a 10-year period, the distribution is broader and slightly shifted to the left, indicating higher variability and a lower likelihood of meeting the national average ARR. In contrast, the 20-year distribution is narrower and more centered around the 6.87% ARR, suggesting that over a longer time horizon, pension funds may be more likely to achieve returns closer to their assumptions—and face lower tail-end risks, that is, the risk of achieving extraordinary gains or losses. Historically, however, the longer the time frame of the forecast, the less accurate it becomes.

Probabilities of Failing to Reach Target Returns

Figure 15: Likelihood of Not Meeting Target Returns Over 10 and 20 Years

This chart illustrates the probabilities of public pension funds not meeting various target returns over 10-year and 20-year periods based on the national average target asset allocation. Red bars represent the 10-year horizon, and blue bars represent the 20-year horizon.

The data show that the likelihood of failure increases as the target return increases. Based on the national average asset allocation, there is a 50% chance that a 7% rate of return will not be reached in the next 10 years. This risk becomes even more pronounced at a 7.5% and 8.0% target, where the probability of failure is around 56%-61% over 10 years and around 54%-61% over 20 years.

Notably, extending the investment horizon from 10 years to 20 years significantly reduces the probability of failure for lower target returns, such as 4.0% and 4.5%, but it has little impact on the higher return targets. This indicates that simply relying on a longer investment period does not sufficiently mitigate the risk associated with aiming for higher returns.

Even at a more moderate target of 6.0%, the chart shows that there is still a 40% chance of not achieving the goal over the next 10 years. This suggests that pension systems aiming for 6.0% to 7.5% returns are taking on significant risk.

Pension systems targeting higher returns, particularly above 6.0%, expose themselves to substantial risk of falling short of their investment goals. The probability of failure is alarmingly high, especially at targets of 7.5% and 8.0%, where the chances of not achieving the goal exceed 50%, regardless of the investment horizon.

**Table: Return Probability Data*

This table presents data for all pension systems back to 2001 where available, displaying the probability of pension plans missing a range of investment return assumptions. Users can search by plan, and the chart includes options to download the data for further analysis.

Cash Flow and Employer Contributions

Summary of Findings:

Steady increase in employer contributions: Employer contributions to pension plans have consistently risen, particularly since 2019, reflecting increasing financial pressures on employers.
Stability in employee contributions: Employee contributions have remained relatively stable, with only a slight increase in 2023.
Rising amortization costs: Amortization costs, which address unfunded pension liabilities, have seen significant growth since 2018, continuing their upward trend through 2023.
Consistency in normal costs: The normal costs, which represent the cost of benefits earned by employees in the current year, have remained mostly unchanged.
High amortization rates: Pension plans with high amortization rates indicate significant unfunded liabilities, necessitating substantial contributions to address past funding shortfalls.
Improving net cash flow trends: The net operating cash flow for pension plans, although negative, has shown improvement from 2016 to 2023, suggesting better management of the gap between contributions and benefit payments.

Employer and Employee Pension Contributions

Figure 16: Average Employer, Employee, Normal Cost, and Amortization Rates

This chart tracks pension contribution rates from 2014 to 2023, breaking down the data into four categories: employer contributions (gray), employee contributions (black), amortization costs (blue), and normal costs (yellow). Over the years, employer contributions have steadily increased, especially from 2019 onward, reflecting the growing financial burden on employers to fund pension plans. Employee contributions, on the other hand, have stayed relatively stable, with only a slight uptick in 2023.

Amortization costs, which cover the payments needed to reduce pension plan unfunded liabilities, have seen significant increases since 2018, reflecting the rising challenge of managing pension debt.

Normal costs, representing the cost of benefits earned by employees in the current year, have remained mostly consistent, showing little change in the overall benefit levels of employees during this period.

Contribution Table

This table provides an in-depth look at the contribution rates for various pension plans across the United States for the fiscal years 2014-2023. It lists different pension plans, categorized by type, such as local and state plans, and breaks down their contribution rates into several components: Employee Contribution Rate, Employer Contribution Rate, Normal Cost Rate, Amortization Rate, and Total Contribution Rate.

Net Amortization and Contribution Benchmarks

Figure 17: Employer Contribution Rates vs. Amortization Benchmarks

This chart tracks employer contribution rates from 2014 to 2023 and compares these rates against various amortization benchmarks. These benchmarks represent different periods—10, 15, 20, and 30 years—over which unfunded pension liabilities would be amortized, offering a perspective on how quickly or slowly pension debt is being paid down.

The orange line on the chart shows the actual employer contribution rates over time, starting around 16% in 2015 and gradually increasing, peaking around 2022 before slightly declining in 2023.

The blue line represents the “Zero Net Amortization ER Benchmark,” which is the contribution rate needed to cover the normal cost plus the interest on the unfunded actuarial accrued liability (UAAL) without actually reducing the UAAL. This rate stays relatively steady, slightly declining as it approaches 2023.

The red dotted line, representing the 30-year amortization benchmark, stays lower than the other benchmarks, reflecting the longer period available to pay down the liabilities, with little fluctuation between 16% and 18% over the years.

The green dotted line, which represents a 20-year amortization benchmark, is generally higher than the 30-year benchmark, but it shows a moderate decline from 2018 onward, indicating that the required contribution rate decreases as the liabilities are paid down more aggressively.

The gray dotted line, which represents the 15-year amortization benchmark, starts around 28%, increases slightly, peaks in 2018, and then steadily declines through 2023. This line is higher due to the shorter period to pay off the liabilities.

The black dotted line, representing the most aggressive 10-year amortization benchmark, shows the highest contribution rates throughout the chart, peaking above 30% in 2017-2018 before sharply declining toward 2023.

The chart illustrates the trade-off between the amortization period and required contribution rates. Shorter amortization periods require higher immediate contributions, putting more immediate financial pressure on employers but at the benefit of substantial long-term savings. Longer periods allow for lower, more spread-out contributions, but interest costs on the unfunded liabilities mean employers ultimately pay much more in total payments. Actual employer contributions have increased over the years, showing efforts to fully fund our nation’s pension systems. By 2022 and 2023, these contributions converge with or exceed the benchmarks for the 10, 15, and 20-year amortization periods, suggesting that employers are aligning their contributions with more aggressive funding strategies to reduce unfunded liabilities more quickly.

The table below displays employer contribution rates and benchmarks for different amortization periods.

The analysis shows that plans with higher contribution rates often face more significant funding challenges, particularly those requiring higher contributions to meet aggressive amortization targets. Plans with lower contribution rates and closer alignment with the benchmarks likely have better-funded positions or more manageable liabilities.

Table: Net Amortization and Contribution Benchmarks Data

This table presents data for all pension systems back to 2013 where available, displaying actual employer contribution rates, as well as the employer rate needed to amortize unfunded liabilities over a 10, 15, 20, or 30 year period. Users can search by year, state, and plan, and the chart includes options to download the data for further analysis.

Net Operating Cash Flow

Figure 18: Net Operating Cash Flow as a Percentage of Market Value of Assets

Net Operating Cash Flow = Total Contribution - Total Benefit Payment

This chart tracks the net cash flow of a pension fund as a percentage of the market value of assets (MVA) from 2014 to 2023. The net operating cash flow is calculated by subtracting total benefit payments from total contributions. The y-axis represents the net cash flow as a percentage of MVA, ranging from -5.0% to 0.0%, while the x-axis spans the years from 2014 to 2023.

The data show that net operating cash flows have been consistently negative throughout this period, which is typical for a mature pension plan. In 2014, the net cash flow was around -2.7% of MVA, and it slightly worsened in the following years, reaching a low of about -2.9% around 2016. After 2016, the chart indicates a gradual improvement in net cash flow, with the percentage rising each year. By 2023, the net cash flow had improved to about -2.0% of MVA.

Negative cash flow is common for pension plans, especially mature ones because the benefit payments to retirees often exceed the contributions from current employees and employers. This doesn’t necessarily indicate a problem, as pension plans are typically designed to rely on investment returns to cover this gap. The improving trend in net cash flow seen in this chart suggests that the gap between contributions and benefit payments has been narrowing, possibly due to increased contributions, reduced benefit payments, or strong investment returns. While the cash flow remains negative, the upward trend is a positive sign, indicating that pension plans are managing their future obligations more effectively over time.

Table: Net Cash Flow Data

The table below provides an overview of the net operating cash flow for various pension plans for the fiscal years 2014-2023. This data can be searched by fiscal year, state, and specific pension plan.

The “Net Cash Flow” column calculates the difference between the total contributions and the benefits paid out, giving a raw measure of whether the plan’s incoming contributions are sufficient to cover its outgoing payments.

The “Net Cash Flow per MVA” further refines this by expressing the net operating cash flow as a percentage of the market value of assets, offering a proportional view of the plan’s cash flow relative to its overall asset base.

Concentration of Pension Debt

Pension debt is heavily concentrated in a few entities in a manner that is disproportionate to their population. Populous entities tend to hold most of the unfunded pension liabilities, even when adjusted at per capita levels. This section breaks down some of the ways pension debt is allocated throughout the country.

This is a slice of the Reason Foundation’s Government Financial Transparency Project, which compiles and visualizes data from governmental entities’ point of view rather than from the plans’, as does this report.

Summary of Findings:

Refers to the most recent fiscal year available for all entities, FY 2022

States

U.S. states owed $505.8 billion in net public pension liabilities.
Illinois and New Jersey account for 42.8% of the total net pension liability held by U.S. states while only being responsible for 6.6% of the U.S. population.
The 10 most indebted states account for 86% of all U.S. states’ total net pension liability.

Cities

The 100 most populated U.S. cities owed $136.8 billion in net public pension liabilities.
The top 10 most indebted cities alone are responsible for 77.15% of the total net pension liability held by all 100 most populous cities.
New York and Chicago cities were responsible for 56.8% of the total net pension liability held by all 100 most populous cities.

Counties

The 100 most populous U.S. counties owed $72 billion as net public pension liabilities.
The top 10 most indebted counties alone are responsible for 64.2% of the total net pension liability held by all 100 most populous counties.
The two most indebted counties were responsible for 24.8% of the total net pension liability held by all 100 most populous counties.

School Districts

The 100 most populated U.S. school districts owed $136.8 billion in net public pension liabilities.
The top 10 most indebted school districts alone are responsible for 59.7% of the total net pension liability held by all 100 most populous school districts.
The Chicago and Los Angeles school districts were responsible for 35.8% of the total net pension liability, while only 7.9% of the student population of the 100 most populous school districts.

Distribution of Total Net Pension Liability by Government Level

Figure 19: Breakdown of Total Net Pension Liability Across State, City, and County Levels

Figure 19 illustrates the distribution of the total net pension liability, which amounts to $792.9 billion, across different levels of local government: state, city, and county. The graph reveals that state-level pension plans bear the largest share of this liability, accounting for 63.3% ($501.8 billion) of the total. City-level plans represent 25.4% ($201.7 billion), while county-level plans hold 11.3% ($89.4 billion).

This distribution reveals distinct challenges for each level of government. While state governments clearly manage the majority of unfunded pension liabilities, cities, school districts, and counties, despite holding smaller shares, might be more heavily burdened by their share of unfunded liabilities, as such entities often face greater constraints in raising revenue. Additionally, they are frequently excluded from discussions on pension benefits and contribution schedules, which typically take place at the state legislature—leaving them with limited control yet full responsibility over their share of unfunded liabilities.

Figure 20: State Breakdown of Total Net Pension Liability Across State, City, and County Levels

Table: Breakdown of Total Net Pension Liability Across State, City, and County Levels Data

This table presents 2023 net pension liabilities, broken down by the amount held by each state’s counties, municipalities, school districts, and state entities. Users can search by state and the chart includes options to download the data for further analysis.

About

About the Reason Foundation Pension Integrity Project

The Pension Integrity Project at Reason Foundation is dedicated to addressing the urgent problem of unfunded pension liabilities, which pose a significant risk to the fiscal stability of states, cities, and counties across the United States. Our goal is to clarify the problems, provide actionable solutions, and deepen the understanding of the challenges facing the American public pension system.

We offer pro-bono consulting to state and municipal officials and other stakeholders, helping them design and implement pension reforms that improve plan solvency and enhance retirement security.

Reason Foundation, a national 501(c)(3) public policy research and education organization, supports this mission with expertise in various policy areas, including transportation, infrastructure, education, technology, and criminal justice.

What Reason’s Pension Integrity Project Does for Policymakers and Pension Plan Stakeholders:

Customized analysis of pension system design, trends, and fiscal trajectory
Independent actuarial modeling to weigh the impact of policy scenarios
Assistance with stakeholder outreach, engagement, and relationship management
Design and execution of public education programs and media campaigns
In-depth case studies of jurisdictions that have adopted reforms, highlighting key lessons learned
Peer-to-peer mentoring from state and local officials who have successfully enacted reforms

Why We Do It:

We believe that public sector retirement systems should work for all public employees and taxpayers. Affordable retirement plans with transparent and accountable management are necessary to support all aspects of good governance. States, cities, and counties will increasingly only be able to provide public services if they are able to adopt financially sustainable retirement benefits.

Policy Objectives:

Keeping Promises: Ensure the ability to pay 100% of the benefits earned and accrued by active workers and retirees
Retirement Security: Provide retirement security for all current and future employees
Predictability: Stabilize contribution rates for the long term
Risk Reduction: Reduce pension system exposure to financial risk and market volatility
Affordability: Reduce long-term costs for employers/taxpayers and employees
Attractive Benefits: Ensure the ability to recruit 21st century employees
Good Governance: Adopt best practices for board organization, investment management, and financial reporting

For those looking to pursue pension reform, Reason Foundation provides tailored technical assistance and resources to address the specific needs of states, counties, and cities. Contact the Reason Pension Reform Help Desk at pensionhelpdesk@reason.org to get in touch.

Stay updated and engage in the discussion on pension and governmental reforms by visiting Reason Foundation’s website or following us on X @ReasonPensions. Additional resources and definitions of technical terms are available to support your efforts in addressing fiscal challenges nationwide.

Data & Glossary

Our dataset comprises 296 public pension plans, of which 192 are state-administered, and 104 are local. Collectively, these plans manage 89% of the total estimated assets within U.S public pensions.

This dataset is a unique and original contribution to the field. While not every data point has been individually confirmed due to the dataset’s scope, we have aimed to ensure the values are as reliable as possible by cross-referencing available ACFR and Valuation reports. This report is an ongoing effort, and we welcome any feedback. If you notice any discrepancies, please reach out to pensionhelpdesk@reason.org so we can address and update the data accordingly.

This analysis takes the numbers as declared and starts by first compiling, analyzing, and contextualizing measures of pension funding and debt (Funding Health). We then analyze the various liability discount rates (Discount Rates) and their implications. Following, we dive deeper into the drivers and impact of past investment performance of public pension funds (Investment Performance) and its asset allocation (Asset Allocation). Finally, we analyze employer contributions to these funds (Employer Contributions) and the cash flows of these pension systems (Cash Flow).

2024 Numbers

Not all plans have filed their valuation reports as of the publishing of this annual report. For fiscal year 2024, some values are estimates based on synthetic portfolios that mirror the risk and return characteristics of the plans’ actual asset allocations alongside historical investment performance data.

Financial Reports

This Reason Foundation data visualization project aggregates and displays financial information extracted from hundreds of audited government financial statements covering Fiscal Years 2020 through 2023. It represents the first project of its kind to systematically compile data from the audited annual comprehensive financial reports (ACFRs) of state and local governments across the United States into a single database, as well as Valuation Reports of a multitude of pension plan systems.

Although these are public documents, they are not required to be published in a machine-readable format. Without machine-readable formatting, extracting and compiling state and local governments’ financial data becomes a laborious project. This barrier impedes bondholders, financial analysts, taxpayers, and citizens from conducting cross-jurisdictional analyses to evaluate how one government entity is performing in relation to others.

The financial and accounting data compiled herein underwent a rigorous validation process with multiple checkpoints, enabling us to accurately distill and compile these data into a series of charts and graphics comparing the performance of one jurisdiction against others. The data collected do not include every element of the financial statements but capture critical values from the government-wide Statements of Activities and Net Position and certain calculated ratios intended to aid users in financial statement analysis.

Investment Performance by Fiscal Year-End Month

A known limitation of comparing pension investment returns is accounting for the period covered by the investment returns declared. When plans file their report and declare investment outcomes, they don’t necessarily cover the same investment period, with some states determining differences in fiscal year-end. The distribution below shows that most plans concentrate around June and December, with a small number of plans ending their fiscal years in March, April, August, and September. This discrepancy can impact the validity of apples-to-apples comparison between year-over-year investment returns from plan to plan. Averages over a certain number of years should eliminate these disparities.

Glossary

The funded ratio indicates the percentage of accrued benefits a pension fund owes that could be covered by current assets.

Unfunded liabilities (UAAL) or the amount by which promised retirement benefits exceed a plan’s assets, are also referred to as unfunded actuarial accrued liabilities (UAAL) or net pension liability (NPL). These liabilities are quantified as the difference between the actuarial accrued liabilities (the present value of all promised retirement benefits) and the plan’s assets, whether measured by MVA or the smoothed AVA, aligning with industry standards.