Litigation

State and local pension benefits and the agencies that administer them are established under and must comply with state and local statutes, public policies and procedures, applicable federal tax qualification, investment, age discrimination, and other requirements.

Litigation surrounding state and local pensions increased in the past few years. Legal challenges pertained primarily to benefit modifications and/or the process by which they were made. Other areas of litigation surrounded investments, benefit taxation, changes in plan design, and other issues. 

Benefit Protections

Pension benefits for employees of state and local government generally are protected by either constitutional or statutory provisions or case law. Levels and types of protections vary by state and are considered by some to be unclear or uncertain in some cases.

Two clauses in the US Constitution that are often cited as protecting pension benefits include:

  • Article 1, Section 10 (clause 1), known as the Contracts Clause. It states that,

"No State shall ...pass any Law impairing the Obligation of Contracts..."

  • The Fifth Amendment contains the so-called Takings Clause:

"No person shall be ... deprived of life, liberty, or property, without due process of law ..."

 Municipal Bankruptcy

Chapter 9 of the United States Bankruptcy Code is uniquely designed to ensure a municipality can continue to provide essential public services while debts are reorganized.  Chapter 9 filings are very rare: Only 14 localities, or one out of every 1,525 eligible localities (0.06 percent), sought bankruptcy protection over the past five years. Only 12 states specifically authorize Chapter 9 filings for their general-purpose local governments, 12 states conditionally authorize such filings, while 26 states either have no Chapter 9 authorization outlined, their laws are unclear, or such filings are otherwise prohibited.

Pension and/or health care benefits earned by retired employees and active vested employees are a consideration in some municipal bankruptcy proceedings. Each jurisdiction that enters into such an agreement does so under a unique circumstance, and there is no broad basis for determining how accrued benefits should be treated as part of a larger post-bankruptcy plan.

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 Plan Investment Return Assumptions

NASRA’s 2026 update on public pension investment return assumptions finds that assumed rates have largely stabilized following more than a decade of steady reductions. Every one of the 132 plans in NASRA’s dataset has lowered its investment return assumption at least once since FY 2009, bringing the average assumption down from 7.94 percent in FY 2009 to 6.91 percent in FY 2025. 

The assumption is especially important because investment earnings provide most of the long-term revenue used to fund public pension benefits. Over the 30 years ending in 2024, investment earnings accounted for nearly 59 percent of public pension fund revenues. While annual investment results can vary widely, longer-term performance has generally met or exceeded current assumptions: median annualized returns for the five-, 10-, 20- and 30-year periods ending in 2025 were all above the current 7.0 percent median assumption. The updated brief explains how plans establish and review return assumptions and why inflation, projected asset-class returns, and a long-term investment horizon are central to that process.