Topics

How Public Pensions Work

Most public pension plans follow a simple process:

  1. Employees contribute money automatically from their paychecks.
  2. Employers (like state or local governments) contribute their required share each year.
  3. 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: Balancing Stability and Sustainability: A Closer Look at Public Pension Contribution Policies

How public employers fund their pension plans has long-term implications for fiscal health and retirement security. NASRA’s latest publication explores the two primary models used across the nation—variable-rate and fixed-rate employer contribution policies—and how public pension systems are adapting these models to navigate evolving fiscal and demographic challenges.