Topics

How Public Pensions Work

Most public pension plans follow a simple process:

Employees contribute money automatically from their paychecks.
Employers (like state or local governments) contribute their required share each year.
The combined money is invested and grows over time by earning interest. That interest then earns even more interest.

When a public employee retires, they start receiving a monthly payment from the pension plan.

Public Pensions Are Pre-Funded

This means that the money to pay retirement benefits is set aside while employees are still working. It’s not paid directly from state or local government budgets as workers retire. Instead, the money comes from pension trust funds that grow during the employee's working years and are paid out during retirement.

Managing Public Pensions

NASRA supports professional management of these pension trust funds. Over time, states often make changes to pension plans to adjust to new conditions. These changes might affect:

How benefits are calculated
How much employees and employers contribute
How the plan is structured

These changes can also impact funding, investments, and how the pension plan is governed. Other important issues include how pension payments support the economy and how pension finances affect state credit ratings. To learn more about a topic related to public pension management click on items in the list on the right side of the page.

The above illustration was modeled from one prepared by the late David P. Hayes who practiced in the employee benefits area for Milliman in Omaha, Nebraska.

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.