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In-depth: Risk Sharing in Public Retirement Plans

Introduction

Nearly every state in recent years enacted reforms to pension plans within their purview. As a result, although most public employers in the U.S. have retained DB plans, in many plans, more risk has shifted from employers to employees.

The purpose of this paper is to increase knowledge and awareness of the wide variety of options that are currently being used to design and finance retirement benefits; it is not an endorsement of any particular plan design or feature. This paper describes risk-sharing features that are incorporated into public pension plans and provides case studies of specific plans that employ risk-sharing structures.

Date published

January 2019

Contact

Keith Brainard, Research Director
Alex Brown, Research Manager

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Introduction to Shared Risk in Public Pensions from NASRA on Vimeo.


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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:
Hybrid Plans and Risk Sharing in Public Retirement Systems

Public defined benefit (DB) retirement plans have long incorporated hybrid features that share costs and risks between employers and employees. Under federal law, defined benefit plans that account for employee contributions are considered hybrid plans, meaning most state and local public pension plans meet this definition. Beyond shared contributions, many public plans incorporate additional risk-sharing provisions, including variable employee contribution rates and benefit adjustments tied to plan experience. These features demonstrate how public pension plans continue to evolve while preserving the core elements of retirement security.

NASRA's 2026 updated issue brief, State Hybrid Retirement Plans, examines two specific types of plans commonly identified as hybrids: combination DB-DC plans and cash balance plans. The brief explores how these designs distribute investment, longevity, and inflation risks between employers and employees. It also places these approaches within the broader continuum of risk-sharing arrangements already embedded in public retirement systems, highlighting the flexibility of public pension plan design in balancing retirement security with long-term financial sustainability.