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.
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...
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...
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.
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.
U.S. Public Pension Plan Contribution Analysis, Society of Actuaries, February 2019
Slower Growth in Pension Contributions: Contribution Practices Improve But Remain Inadequate, Fitch Ratings, May 2018