Investment Return Assumptions

Introduction

As of December 31, 2024, state and local government retirement systems held assets of approximately $6.2 trillion.1 These assets are held in trust and invested to pre-fund the cost of pension benefits. Because investment earnings account for a majority of public pension revenues, the investment return on these assets has an outsized effect on public pension plan funding levels and costs. A shortfall in long-term expected investment earnings must, over time, be made up by higher contributions, reduced benefits, or both.

Funding a pension benefit requires the use of predictions about future events, which are used to develop actuarial assumptions. Actuarial assumptions fall into one of two broad categories: demographic and economic. Demographic assumptions are those pertaining to a pension plan’s membership, such as changes in the number of working and retired plan participants; at what age participants will retire, and how long they’ll live after they retire. Economic assumptions pertain to such factors as the rate of plan participant wage growth and the future expected investment return on the fund’s assets.

As with other actuarial assumptions, projecting public pension fund investment returns requires a focus on the long-term. This brief discusses how investment return assumptions are established and evaluated, and recent trends and changes in assumed rates used by public pension plans.

Date  Published

June 2025

Contact

Keith Brainard, Research Director
Alex Brown, Research Manager

Download Issue Brief

 


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: Updated Cost of Living Issue Brief

Cost-of-Living Adjustments (COLAs) play a significant role in public pensions. They help retirees keep up with rising prices, but they also add costs to pension plans. Policymakers and plan sponsors are tasked with balancing three things: benefits adequacy, plan sustainability, and affordability for members and plan sponsors.
The recent increase in inflation caused many policymakers and, in some cases pension trustees, to review how benefits are designed and paid for, including the way COLAs are granted and funded. NASRA’s recently updated issue brief on the lates trends in COLAs is available in the NASRA Research Center.