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Investment

Public pension fund assets are invested in diversified portfolios that include public equities; bonds issued by the U.S. and foreign governments and corporations; real estate; alternatives, such as private equities, hedge funds, and infrastructure; and other asset classes. Over time, earnings on investments constitute the largest portion of public pension fund revenues, which also include contributions from employers and employees.

Over time, investment earnings consistently account for nearly 60% or greater aggregate of public pension fund revenue, making them the single largest source of revenue for public pensions.

Public pension asset allocations typically are developed as part of a process that considers the plan's liability stream, or projected benefit payments, expected revenue from contributions, and investment earnings.

Based on the latest information from the Public Fund Survey, the average public pension fund asset allocation as of FY 24 is as follows:

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Investment Earnings

Over time, investment earnings consistently account for between 60 percent and 65 percent of public pension fund revenue.  Investment earnings take the form chiefly of income from fixed income securities (bonds), and capital appreciation of equities. Investment earnings are the most volatile source of public pension revenue.

Median Annualized Public Pension Investment Returns for Periods Ended 6/30/25 and 12/31/25

Investment Policies and Practices

Most public funds maintain an investment policy to guide the investment of assets. A GFOA Best Practice "Investment Policy," states in part:

An investment policy enhances the quality of decision making and demonstrates a commitment to the fiduciary care of public funds, making it the most important element in a public funds investment program.

Recommendation. GFOA recommends that all governments establish a comprehensive written investment policy, which should be adopted by the governing body.

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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: Government Spending Issue Brief

NASRA’s March 2026 update on government spending makes a basic but important point: public pension benefits are not paid out of a government’s day-to-day operating budget. They are paid from trust funds that employees and employers contribute to during an employee’s working years. Those trusts distribute more than $400 billion each year to retirees and beneficiaries in communities across the country. On a national basis, employer contributions to pension trusts in FY 2023 equaled 5.16 percent of direct general spending by state and local governments, which shows that pension contributions remain a limited share of overall public spending even though the level varies from one state to another. 
The brief also shows that pension costs should be viewed in the context of the changes governments have made over the past 15 years to strengthen plan funding. Following the 2008–09 market decline, nearly every state and many local governments adjusted contributions, benefits, or both to improve pension sustainability. More recent data show that employer contributions increased from FY 2022 to FY 2023, but pension spending as a share of total government spending remained broadly stable. The updated brief provides FY 2023 figures and also projects the aggregate pension spending rate for FY 2024, offering a useful snapshot of both current costs and the longer funding trend.