Improved outlook for U.S. public pension funding in 2025, despite unsatisfactory returns according to Equable Institute's analysis.
The first half of 2025 saw a tumultuous period in global markets, with aggressive tariff announcements from the Trump administration causing a significant plunge. This market volatility, however, did not deter the progress of public pension funds in the United States, as revealed in the Equable Institute's State of Pensions 2025 report.
The report, released in 2025, analyses trends in public pension funding, investments, contributions, cash flows, and benefits for 245 of the largest statewide and municipal retirement systems in all 50 states. The findings indicate a moderate improvement in the nation's pension funds, with the aggregate funded ratio expected to reach 81.4% in 2025, up from 78.3% in 2024.
The improvement in the funded ratio and the decline in unfunded liabilities, which are projected to decrease from $1.51 trillion in 2024 to $1.35 trillion in 2025, suggest better-than-expected investment performance or favourable actuarial assumptions in 2025.
However, the report underscores that challenges persist, particularly in states like Illinois, where employer contribution rates are rising, and pension debts significantly strain state budgets and taxpayers. Illinois' unfunded obligations equal 19.02% of its state GDP—the highest in the nation—contributing to a near 20-fold increase in taxpayer contributions from $614 million in 1996 to $11.2 billion in 2025. This elevated burden drives Illinoisans to experience the highest effective property tax rate in the U.S.
The report highlights the urgent need for pension reforms to achieve fiscal stability. The Equable Institute, a bipartisan non-profit that works with public retirement system stakeholders, aims to support public sector workers in understanding how their retirement systems can be improved and helps state and local governments find ways to fix threats to municipal finance stability and ensure the retirement security of all public servants.
Moreover, the report finds that most public pension plans are projected to underperform their assumed return targets (6.87% on average). Preliminary 2025 investment returns for state and local plans are 5.41% on average, through June 30, 2025. The share of pension fund investments that are exposed to valuation risk is now 25.6% in 2024.
The Equable Institute's mission is to solve complex pension funding challenges with data-driven solutions. The institute can be found online at Equable.org, and it has a presence on Twitter (@EquableInst), Facebook (@EquableInstitute), and Instagram (@EquableInst).
In conclusion, the Equable Institute's State of Pensions 2025 report presents a mixed picture. While there is a moderate improvement in the nation's pension funds, challenges persist, particularly in specific states. The report underscores the need for pension reform efforts to ensure the long-term sustainability of public pension funds.
- The report revealed that most public pension plans might underperform their assumed return targets, potentially impacting the security of personal-finance for public servants.
- As the share of pension fund investments exposed to valuation risk increased to 25.6% in 2024, the need for better data-and-cloud-computing solutions in managing these investments became more urgent.
- The turbulence in global markets hasn't deterred the growth of business in technology, with platforms like Equable.org and social media accounts such as EquableInst on Twitter, Facebook, and Instagram proving to be effective tools for disseminating financial news.
- Despite the moderate improvement in the nation's pension funds, the report stressed that there are still significant challenges, particularly in states like Illinois, where security of both public finance and personal-finance is at stake due to escalating unfunded obligations.
