Equable Institute released a year-end update to its State of Pensions 2025 report. The analysis finds the aggregate funded ratio for U.S. state and local retirement systems are on track to improve from 78.0% in 2024 to 82.5% in 2025, based on data available through December 31st, 2025. Equable Institute estimates that unfunded liabilities will total $1.27 trillion for the 2025 fiscal year, compared to $1.54 trillion at the end of 2024.

Strong market performance and record high contribution rates continue to drive positive funding trends in 2025. Preliminary investment returns average 9.5% for public pension plans, which is an overperformance compared to the average 6.9% assumed return target. However, there are negative trends on the horizon that pension funds should expect to navigate including state budget pressures and numerous potential recession indicators.

“The significant degree of financial uncertainty public pensions face going into 2026 has put a dampener on what would otherwise be a strong year for state and local retirement systems,” Equable executive director Anthony Randazzo said. “Three consecutive years of growth has public plans in a much better position than in 2022, but still a fragile condition. As the tariff-driven economic shock of April 2025 demonstrated, there is no significant ability for public plans to avoid a major market downturn. The biggest thing to monitor in 2026 is how states will handle growing contribution rate pressures in the contexts of budget shortfalls.”

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