Public Pension Funds in the U.S. Show Strong Returns Amid Financial Uncertainty

In a recent analysis released by the Equable Institute, significant improvements in the funded ratio of U.S. state and local retirement systems were reported, marking a notable shift from the previous year. As highlighted in the State of Pensions 2025 year-end update published on January 8, 2026, the overall funded ratio is projected to rise to 82.5% by the end of 2025, a considerable increase from 78.0% in 2024.

Equable Institute's findings emphasize that while the overall financial health of public pension plans is improving, there remains a substantial challenge in the form of unfunded liabilities, currently estimated at $1.27 trillion. This down from $1.54 trillion in 2024, suggests a positive trend in addressing these long-standing funding gaps.

The analysis underscores that the strong performance in the market, alongside historically high contribution rates, has catalyzed positive funding dynamics for public pension plans in 2025. The report noted average investment returns of 9.5%, exceeding the anticipated return target of 6.9%, thus bolstering the funds' stability.

Despite these encouraging statistics, the report also warns of significant financial uncertainties looming on the horizon. As Anthony Randazzo, executive director of the Equable Institute, points out, even as pension plans have made notable strides since 2022, they remain in a fragile condition. Factors such as pressure on state budgets and numerous recession indicators could adversely affect their stability moving into 2026.

Randazzo elaborates, "The substantial financial uncertainty faced by public pensions as we approach 2026 casts a shadow over what might otherwise be a very positive year for state and local retirement systems. After three consecutive years of growth, these public plans are in a far better place than they were in 2022, yet they still remain vulnerable to market fluctuations and economic shocks."

One such shock was illustrated in April 2025, where economic conditions driven by tariff implementation showcased the potential risks these funds face. Looking ahead, Randazzo highlights that one of the most pressing issues will be how states manage increasing contribution rate pressures within the confines of expected budget shortfalls.

This year's report encourages a proactive approach to navigating upcoming challenges in the public pension landscape. It suggests that states and local governments must enhance their strategies to mitigate risks while ensuring the financial security of their public sector workers.

In conclusion, the Equable Institute's State of Pensions 2025 report reveals a complex picture of the U.S. public pension landscape. While improvements in funding ratios signal progress, the persistent specter of unfunded liabilities and the potential for economic downturns serve as critical reminders of the need for sustainable fiscal practices within public retirement systems. Stakeholders are encouraged to continuously engage in dialogues about reform and innovative solutions to sustain these critical funds.

For further insights, interactive data visualizations, and access to raw data, one can visit Equable Institute’s official website.

About Equable Institute:
Equable Institute is a non-profit organization committed to collaborating with public retirement system stakeholders to develop solutions for complex pension funding dilemmas. The institute's primary mission is to promote the well-being of public sector workers by enhancing their understanding of pension systems and assisting governments in achieving financial stability while ensuring retirement security for public servants.