State and Local Government Contributions to Statewide Pension Plans: FY 23

Introduction

Pension benefits for employees of state and local governments are paid from trust funds to which public employers and employees contribute during employees’ working years. Timely contributions are vital both to adequate funding and to the sustainability of these plans: failing to pay required contributions results in higher future costs due to foregone principle and investment earnings that the contributions would have generated. 

According to the US Census Bureau, on a national basis, contributions made by employers—states and local governments—in 2023 accounted for 76 percent of all contributions received by public pension plans. The remaining contributions were paid by public employees. A 2024 NASRA issue brief finds that contributions made by state and local governments to pension trust funds in recent years account for 5.1 percent of all non-federal spending.

Funding a pension plan takes place over many years and, as described in the box below, typically involves a combination of contributions from employees and employers, which are invested to generate investment earnings. The amount of contributions needed to fund a pension plan is calculated as part of an actuarial valuation, a mathematical process that determines a pension plan’s condition and cost needed to pay promised benefits. As shown in Figure A, contributions are a vital source of public pension funding: of the $10+ trillion in public pension revenue received during the 30-year period since 1994, 39 percent, or more than $4.0 trillion, came from contributions paid by employers and employees.  Contributions, of course, provide the basis for investment earnings, which are responsible for the majority of revenue – over 60 percent for the same 30-year period – received by public pension funds.  

Date  Published

December 2024

Contact

Keith Brainard, Research Director
Alex Brown, Research Manager

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