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: Employee Contributions to Public Pension Plans

Employee contributions remain a central part of public pension financing, and the way those contributions are structured is subject to change depending each states' governance rules. . NASRA’s 2026 updated brief finds median employee contribution rates of 6.2 percent of pay for employees who participate in Social Security and 9.0 percent for those who do not. For employees who do not participate in Social Security, the public pension often plays a broader role in retirement security, effectively providing two of the traditional three legs of the retirement stool rather than one.

Since 2009, 41 states increased employee contributions in at least one plan, while some states recently reduced rates for selected employees. Variable contributions are also becoming more common, with 26 plans in 17 states adjusting employee rates based on funding, plan costs, or other factors. The brief provides current trends and a state-by-state look at employee contribution requirements across public retirement systems.