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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: Employee Contributions to Public Pension Plans

Employee contributions remain a central part of public pension financing, and the way those contributions are structured is subject to change depending each states' governance rules. . NASRA’s 2026 updated brief finds median employee contribution rates of 6.2 percent of pay for employees who participate in Social Security and 9.0 percent for those who do not. For employees who do not participate in Social Security, the public pension often plays a broader role in retirement security, effectively providing two of the traditional three legs of the retirement stool rather than one.

Since 2009, 41 states  increased employee contributions in at least one plan, while some states recently reduced rates for selected employees. Variable contributions are also becoming more common, with 26 plans in 17 states adjusting employee rates based on funding, plan costs, or other factors. The brief provides current trends and a state-by-state look at employee contribution requirements across public retirement systems.