Contributions

Public pensions are financed primarily from two sources: contributions and investment earnings. Because nearly all state and local retirement systems are shared-financing arrangements, contributions come from both employees and employers.

Employer Contributions

According to the U.S. Census Bureau, in FY 20, employer pension contributions accounted for 5.2 percent of all state and local government direct general spending (an amount that excludes intergovernmental transfers). More...

State and Local Spending on Public Pensions, FY 22

Employee Contributions
 

For the vast majority of employees of state and local government, participation in a public pension plan and contributing toward the cost of the pension are mandatory terms of employment. Employee contributions provide a reliable and predictable stream of revenue to public pension funds and typically are based on a percentage of salary as specified in statute, most commonly between four and eight percent. More...

Contributions Over Time

Over time, investment earnings finance a majority of the cost of a typical public pension plan. According to the U.S. Census Bureau, for the 30 years 1992 through 2021, investment earnings accounted for 64 percent of public pension revenues; employer contributions made up approximately 25 percent, and employee contributions were around 11 percent.
 

Public Pension Sources of Revenue, 1994-2023


 

A recent study, Pensionomics 2023: Measuring the Economic Impact of DB Pension Expenditures, finds that pension benefits have a significant economic impact: 6.8 million American jobs, $1.3 trillion in economic output, adding more than $150 billion in combined revenue to local, state, and federal governments.

NASRA Resources

Other Resources


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: Public Pension Investment Return Assumption Brief Updated

NASRA’s latest update to standing issue briefs, Public Pension Plan Investment Return Assumptions underscores the critical role the investment return assumption plays in the financial health of public pension plans. Of all actuarial assumptions, it has the greatest impact on plan funding levels and cost. This brief traces how a decade of low interest rates and inflation, beginning in 2009, prompted many plans to reduce their long-term expected returns in line with more modest capital market projections. However, since inflation began rising in early 2021, the trend toward lowering return assumptions has largely paused. While reducing a plan’s assumed return can increase both costs and unfunded liabilities, setting this assumption is a careful, thorough process. It draws on expert input from actuaries and investment professionals and is guided by actuarial standards of practice.