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Employee Contributions

Introduction

Nearly all employees of state and local government are required to share in the cost of their retirement benefit, a requirement that contrasts with private-sector pension plans, whose participants do not contribute to their pension benefit. Employee contributions to public pensions typically are set as a percentage of salary either by statute or by the board that oversees the pension plan. By providing a consistent and predictable stream of revenue to public pension funds, employee contributions fill a vital role in financing pension benefits. Reforms made in the wake of the 2008-09 market decline included higher employee contribution rates for many public pension plans and, increasingly, variable contribution arrangements in which the employee contribution rate can change depending on certain factors. Though isolated, incremental, and in some cases, conditional, some states in recent years have reduced employee contribution rates for some groups. This issue brief examines employee contribution plan designs, policies, and recent trends.

Date  Published

September 2026

Contact

Keith Brainard, Research Director
Alex Brown, Research Manager

Download Issue Brief


Become A Member

Becoming a member of NASRA offers a unique opportunity to join a community committed to the sound, efficient, and innovative stewardship of public retirement systems. Membership connects you with a network of professionals and experts, providing valuable insights into managing public retirement systems with a focus on sustainability and risk-averse strategies.

By joining NASRA, you gain the tools and resources to enhance the management of public retirement systems, ensuring their long-term success and reliability for generations to come.

What's New at NASRA:
Hybrid Plans and Risk Sharing in Public Retirement Systems

Public defined benefit (DB) retirement plans have long incorporated hybrid features that share costs and risks between employers and employees. Under federal law, defined benefit plans that account for employee contributions are considered hybrid plans, meaning most state and local public pension plans meet this definition. Beyond shared contributions, many public plans incorporate additional risk-sharing provisions, including variable employee contribution rates and benefit adjustments tied to plan experience. These features demonstrate how public pension plans continue to evolve while preserving the core elements of retirement security.

NASRA's 2026 updated issue brief, State Hybrid Retirement Plans, examines two specific types of plans commonly identified as hybrids: combination DB-DC plans and cash balance plans. The brief explores how these designs distribute investment, longevity, and inflation risks between employers and employees. It also places these approaches within the broader continuum of risk-sharing arrangements already embedded in public retirement systems, highlighting the flexibility of public pension plan design in balancing retirement security with long-term financial sustainability.