Funding Health and Risk Assessment
Summary of Findings:
- The great spike in unfunded liabilities: Unfunded liabilities grew the most after the Great Recession, rising by around $1.11 trillion, a 632% increase between 2007 and 2010.
- Marginal gains in the last decade: An improvement in the funding ratio is observed at the same time as unfunded liabilities grow from 2010 - 2023.
- Market-to-market valuations are more volatile: The MTM aggregate pension funded ratio reached its all-time-high and all-time-low in four years, following the Great Recession’s tides to achieve 95% funding in 2007, and falling to 63% in 2009.
In 2023:
- The total unfunded liabilities in 2023 was $1.59 trillion, with $1.41 trillion (88% of the total) held by state plans and $188 billion (12% of the total) held by local plans.
- The national aggregate funded ratio in 2023 was 76% and the median funded ratio was 76%. The median state plan was 78% funded, while the median local plan was 70% funded.
- Stress testing results indicate that a recession could double unfunded liabilities, rising from the forecasted $1.31 trillion in 2024 to $2.71 trillion in 2025.
Funded Status and Aggregate Unfunded Liabilities
Figure 1: Trends in Funded Ratios and Unfunded Accrued Liabilities
This chart compares aggregate historical unfunded liabilities and funded ratios held by public pensions based on the historical Market Value of Assets (MVA) between 2001-2023, with modeled unfunded liabilities for 2024 and a stress option for fiscal year 2025.
The national aggregate funded ratio for public pensions in 2023, based on MVA, is 76%, showing relative stability compared to 2022. However, this represents a decline of 9 percentage points from the historical high in 2021, driven by market gains that year. Similar to patterns observed after the Great Recession, the rise in interest rates and abrupt market corrections in 2022 erased most of 2021’s gains, bringing the aggregate funded ratio back to levels observed during the peak of the 2010s.
Given the substantial impact of market downturns on the rise of unfunded liabilities, we simulated a -20% market return for fiscal year 2025 to assess the resilience of pension plans to another “Great Recession”-type shock. This stress scenario indicates that the average funding level of U.S. pension systems could fall to 61%.
Public pensions did not always have unfunded liabilities. As illustrated in Figure 1, the $1.59 trillion in pension debt reported by public pension systems in 2023 started at the turn of the century and exploded post-Great Recession, with a notable surge between 2007 and 2009. From 2007 to 2010, unfunded liabilities increased by $1.11 trillion—a 632% rise over just three years.
Since then, funded ratios have fluctuated around 70%-80%, but unfunded liabilities have continued to rise. Between 2011 and 2023, unfunded pension liabilities have grown by 45%.
Examining 291 public pension plans from 2011 to 2023 reveals a paradox: there is a simultaneous improvement in funding status and growth of unfunded liabilities. This phenomenon occurs because pension systems have expanded their total asset and liability pools over time. As liabilities grow, even if the funded ratio improves, the absolute dollar amount of unfunded liabilities can rise, reflecting the larger scale of the pension system.
The Gap Between Assets and Liabilities
Figure 2: Growth of Market Value of Liabilities and Actuarial Accrued Liabilities
This chart analyzes the aggregate assets (green) and actuarial accrued liabilities (red) of public pension funds from 2001 to 2023, with projections for 2024 and a stress test simulating a -20% market return for 2025 (as indicated by the gray bar).
A significant share of the gap between the value of assets and accrued liabilities lines on the chart results from recent readjustments to liability discount rates, which have increased their present value (see section II. Discount Rates).
The chart also reflects the significant volatility in pension assets, particularly during market downturns. The stress test for 2025, which models a -20% market return, shows that such a scenario could further deepen the funding shortfall, potentially pushing many plans into critical underfunding territory.
Unfunded Liabilities by State and Local Plans
Figure 3: Distribution of Unfunded Liabilities Across State and Local Pension Plans
This chart illustrates the distribution of unfunded liabilities across state and local pension plans. It includes historical data from 2001 to 2023, estimates for 2024, and a -20% investment return projection for 2025. State pension plans are depicted in gray, while local plans are shown in orange.
State plans hold the largest share of public pension unfunded liabilities. The total unfunded liabilities in 2023 was $1.59 trillion, with $1.41 trillion (88% of the total) held by state plans and $188 billion (12% of the total) held by local plans. This represents a 73% increase from 2021, as the market corrections of 2022 erased most of the market gains observed during 2021.
Public Pension Funded Level Distribution
Figure 4: Funded Ratio Distribution of Public Pension Plans (2023)
This chart displays the distribution of funded ratios for public pension plans in 2023. For plans that have not yet published their FY 2023 reports, estimates are used. Each bubble represents a unit (either a state or a particular plan, depending on the setting chosen), with the size of the bubble corresponding to liability size.
Most states’ pension plans have funded ratios clustering around 70% to 90%, with a few states above 100% and some even below 50%. However, just one bad year of investment returns (our stress scenario for 2025) shows most plans would converge in the 55%-65% range.
Discount Rate Adjusted Unfunded Liabilities
Figure 5: Effect of Discount Rate Changes on Actuarial Accrued Liabilities (2023)
This chart examines how adjustments to discount rates influence the calculation of unfunded liabilities in public pension plans. Figure 5 illustrates the impact of applying different discount rates to Actuarial Accrued Liabilities (AAL) for 2023.
On the top of the chart, we see the “Current AAL,” which is $6.64 trillion. This represents the liability calculated using the plan’s existing discount rate (the national average is 6.89%). The current unfunded liability based on MVA is $1.59 trillion, and the funded ratio is 76%.
This chart also displays how the Actuarial Accrued Liability (AAL) and Unfunded Accrued Liability (UAL) changes under three different discount rates:
- 6% Discount Rate: The AAL increases to $7.36 trillion. The UAL increases to $2.31 trillion, and the funded ratio decreases to 69%. This reflects a more conservative estimate, as a lower discount rate means future liabilities are valued more highly, leading to a larger AAL.
- 6.5% Discount Rate: The AAL increases to $6.94 trillion. The UAL increases to $1.89 trillion, and the funded ratio decreases to 73%.
- 7% Discount Rate: The AAL decreases to $6.56 trillion. The UAL decreases to $1.51 trillion, and the funded ratio increases to 77%. The liabilities drop because 7% is higher than the national average discount rate of 6.89%.
Funding Health Data
This table presents data for all pension systems back to 2001, displaying the Actuarial Accrued Liability (AAL), Market Value of Assets (MVA), Unfunded Actuarial Liability (UAL), and the Funded Ratio. Users can search by year and state, and the chart includes options to download the data for further analysis.
| Fiscal Year | Actuarial Accrued Liability (AAL) | Market Value of Assets (MVA) - 20% Stress Scenario | Market Value of Assets (MVA) - 10% Stress Scenario | Market Value of Assets (MVA) - Baseline Scenario | Unfunded Accrued Liability (UAL) - 20% Stress Scenario | Unfunded Accrued Liability (UAL) - 10% Stress Scenario | Unfunded Accrued Liability (UAL) - Baseline Scenario | Funded Ratio - 20% Stress Scenario | Funded Ratio - 10% Stress Scenario | Funded Ratio - Baseline Scenario |
|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | $7,047,882,943,135 | $4,332,890,673,111 | $4,880,662,537,312 | $5,428,749,069,552 | $2,714,992,270,024 | $2,167,220,405,823 | $1,619,133,873,582 | 61.5% | 69.3% | 77.0% |
| 2024 | $6,845,276,633,436 | $5,535,800,676,448 | $5,535,800,676,448 | $5,535,800,676,448 | $1,309,475,956,988 | $1,309,475,956,988 | $1,309,475,956,988 | 80.9% | 80.9% | 80.9% |
| 2023 | $6,643,129,092,845 | $5,049,712,683,886 | $5,049,712,683,886 | $5,049,712,683,886 | $1,593,416,408,959 | $1,593,416,408,959 | $1,593,416,408,959 | 76.0% | 76.0% | 76.0% |
| 2022 | $6,407,133,373,101 | $4,827,088,365,630 | $4,827,088,365,630 | $4,827,088,365,630 | $1,580,045,007,470 | $1,580,045,007,470 | $1,580,045,007,470 | 75.3% | 75.3% | 75.3% |
| 2021 | $6,142,483,181,517 | $5,223,620,107,789 | $5,223,620,107,789 | $5,223,620,107,789 | $918,863,073,728 | $918,863,073,728 | $918,863,073,728 | 85.0% | 85.0% | 85.0% |
| 2020 | $5,854,557,417,046 | $4,242,190,095,047 | $4,242,190,095,047 | $4,242,190,095,047 | $1,612,367,321,999 | $1,612,367,321,999 | $1,612,367,321,999 | 72.5% | 72.5% | 72.5% |
| 2019 | $5,632,509,798,568 | $4,160,474,507,883 | $4,160,474,507,883 | $4,160,474,507,883 | $1,472,035,290,685 | $1,472,035,290,685 | $1,472,035,290,685 | 73.9% | 73.9% | 73.9% |
| 2018 | $5,406,932,934,012 | $3,964,174,310,190 | $3,964,174,310,190 | $3,964,174,310,190 | $1,442,758,623,822 | $1,442,758,623,822 | $1,442,758,623,822 | 73.3% | 73.3% | 73.3% |
| 2017 | $5,194,095,638,733 | $3,801,744,223,359 | $3,801,744,223,359 | $3,801,744,223,359 | $1,392,351,415,374 | $1,392,351,415,374 | $1,392,351,415,374 | 73.2% | 73.2% | 73.2% |
| 2016 | $4,960,207,438,317 | $3,466,375,498,708 | $3,466,375,498,708 | $3,466,375,498,708 | $1,493,831,939,609 | $1,493,831,939,609 | $1,493,831,939,609 | 69.9% | 69.9% | 69.9% |
| 2015 | $4,707,596,289,107 | $3,497,342,271,491 | $3,497,342,271,491 | $3,497,342,271,491 | $1,210,254,017,616 | $1,210,254,017,616 | $1,210,254,017,616 | 74.3% | 74.3% | 74.3% |
| 2014 | $4,488,827,062,770 | $3,495,505,355,537 | $3,495,505,355,537 | $3,495,505,355,537 | $993,321,707,233 | $993,321,707,233 | $993,321,707,233 | 77.9% | 77.9% | 77.9% |
| 2013 | $4,277,730,055,905 | $3,122,790,347,842 | $3,122,790,347,842 | $3,122,790,347,842 | $1,154,939,708,063 | $1,154,939,708,063 | $1,154,939,708,063 | 73.0% | 73.0% | 73.0% |
| 2012 | $4,108,050,579,606 | $2,867,068,786,079 | $2,867,068,786,079 | $2,867,068,786,079 | $1,240,981,793,528 | $1,240,981,793,528 | $1,240,981,793,528 | 69.8% | 69.8% | 69.8% |
| 2011 | $3,960,868,554,019 | $2,858,475,841,813 | $2,858,475,841,813 | $2,858,475,841,813 | $1,102,392,712,207 | $1,102,392,712,207 | $1,102,392,712,207 | 72.2% | 72.2% | 72.2% |
| 2010 | $3,800,216,836,828 | $2,516,466,583,902 | $2,516,466,583,902 | $2,516,466,583,902 | $1,283,750,252,926 | $1,283,750,252,926 | $1,283,750,252,926 | 66.2% | 66.2% | 66.2% |
| 2009 | $3,627,965,411,279 | $2,282,766,807,037 | $2,282,766,807,037 | $2,282,766,807,037 | $1,345,198,604,242 | $1,345,198,604,242 | $1,345,198,604,242 | 62.9% | 62.9% | 62.9% |
| 2008 | $3,449,324,850,100 | $2,792,389,940,634 | $2,792,389,940,634 | $2,792,389,940,634 | $656,934,909,466 | $656,934,909,466 | $656,934,909,466 | 81.0% | 81.0% | 81.0% |
| 2007 | $3,255,562,032,516 | $3,080,088,391,314 | $3,080,088,391,314 | $3,080,088,391,314 | $175,473,641,202 | $175,473,641,202 | $175,473,641,202 | 94.6% | 94.6% | 94.6% |
| 2006 | $3,044,420,609,735 | $2,703,645,181,425 | $2,703,645,181,425 | $2,703,645,181,425 | $340,775,428,310 | $340,775,428,310 | $340,775,428,310 | 88.8% | 88.8% | 88.8% |
| 2005 | $2,864,105,691,838 | $2,477,545,997,781 | $2,477,545,997,781 | $2,477,545,997,781 | $386,559,694,056 | $386,559,694,056 | $386,559,694,056 | 86.5% | 86.5% | 86.5% |
| 2004 | $2,730,600,423,769 | $2,292,270,448,853 | $2,292,270,448,853 | $2,292,270,448,853 | $438,329,974,915 | $438,329,974,915 | $438,329,974,915 | 84.0% | 84.0% | 84.0% |
| 2003 | $2,566,975,977,077 | $2,021,829,026,720 | $2,021,829,026,720 | $2,021,829,026,720 | $545,146,950,358 | $545,146,950,358 | $545,146,950,358 | 78.8% | 78.8% | 78.8% |
| 2002 | $2,384,482,841,035 | $1,952,451,543,762 | $1,952,451,543,762 | $1,952,451,543,762 | $432,031,297,273 | $432,031,297,273 | $432,031,297,273 | 81.9% | 81.9% | 81.9% |
| 2001 | $2,205,181,287,872 | $2,112,671,830,625 | $2,112,671,830,625 | $2,112,671,830,625 | $92,509,457,247 | $92,509,457,247 | $92,509,457,247 | 95.8% | 95.8% | 95.8% |