The Equable Institute’s 2026 survey of the 253 US state and local pension plans shows that their funded ratio has reached 85%, the best since hitting bottom during the 2008 global financial crisis.Their average return on investment was 9.4%, higher than the average target of 6.9%.

Set against this strong performance, however, is the US$1.37 trillion in outstanding liabilities, higher than the institute’s $1.27 trillion prediction in January. The figure is “just $210 billion better than 2009’s $1.34 trillion gap despite 17 years of contributions and strong returns”, according to the institute’s report.

As always, performance disparities across the US are huge. Georgia improved from 84.9% funded in 2025 to 93.5% in 2026. Spare a thought, though, for the pensioners of Illinois, still in the distressed category at only 56.4% funded.

In fact, Equable Institute points out that across the US, “nearly 60% of public plans remain fragile or distressed”.

The factors driving unfunded liabilities are indicative of the signs of the times. The report identifies changes to actuarial assumptions, underperforming investments, and contributions being less than interest on debt as the key drivers. Today’s changeable, highly inflationary environment and longer-living populations, in other words, are stoking liabilities.

Also concerning is the US pension community’s concentration on just a few strategies and investment propositions, with artificial intelligence being a standout example. At least 8%–10% of US pension assets are allocated to AI companies, according to the report, with actual exposure via private markets and externally managed investments probably much higher.

US public pensions are therefore highly vulnerable if the AI boom turns out to be a bubble.

More broadly, “public plans are vulnerable to a broad market downturn as their assets have collectively converged on an investment strategy that primarily seeks growth with little allocated to counter cyclical strategies”, Equable Institute says.

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