Annual Pension Solvency and Performance Report

This chart is a time series of the average declared yearly rate of return for public pension funds (orange) since 2001. Upon selection, it can be overlapped with aggregated returns by states, or those achieved by individual plans.

In 2023, the plans in our sample have declared an average return of 6.9%. This national average can be compared to an individual state’s or pension system’s return for the same period.

The chart reveals the volatility of investment outcomes, with substantial fluctuations year over year. The most notable gains were recorded in 2021, with an average return of 25.3%, driven by exceptional market performance. However, this was followed by significant losses in 2022, with an average return of -5.0%, the third-worst performance in the past two decades. The worst years in the period were 2008 and 2009, with returns of -6.8% and -13.0%, respectively, reflecting the severe impact of the Great Recession.

This chart illustrates the yearly average assumed rate of return (ARR) for public pension plans (black) alongside the national 23-year average return rate of 6.5% (yellow).

Public plans determine their assumed rate of return (ARR) based on an independent judgment of their assets and future market returns. This value is then used to discount and present the value of the retirement benefits owed to plan members (accrued liabilities), which determines the funding ratio of a plan—the ultimate measure of solvency and fiscal health for researchers, regulators, and bondholders. Overestimating market returns improves accounting optics, but leads to unrecognized underfunding and generating government debt–unfunded pension liabilities.

Public pension funds have faced significant challenges in meeting their assumed rates of return. On average, the actual rate of return over the past 23 years is 6.5%, far below the average assumed rate of return of 7.59% over the same period—leading to the creation of unfunded liabilities.

As public pensions have been held to higher scrutiny, assumed rates of return have been rapidly declining in the past two decades, more closely reflecting realistic investment return forecasts. The average ARR in 2001 was 8.0%, while in 2023, it reached 6.89%. Pension plans have reached historically low assumed rates of return, with recent brusque revisions observed after the market downturn of 2022. Even still, the all-time low 2023 average of 6.89% is still incongruent with the past 23 years of pension investment returns.

This chart examines the annualized excess returns of public pension funds since 2001, defined as the differences between the actual average returns achieved by the funds and their current assumed rates of return (ARRs), as depicted in Figure 7.

Funds that have outperformed their benchmark in the past 23 years are colored blue, and those who failed are colored in orange.

Of the 191 plans in our database with full 23-year return data, 99% failed to meet their average ARRs over the past 23 years, and 85% failed to meet their current ARRs over the same period. This persistent underperformance is critical because it directly affects the financial sustainability of pension systems and the taxpayers who back them. When actual returns fall short of the assumed rates, the gap must be filled by increased contributions or by allowing unfunded liabilities to grow. Over time, this can lead to significant financial strain on the pension systems and the governments that sponsor them.

This chart compares the distribution of actual average investment returns achieved by public pension plans over the past 23 years (orange), the distribution of 2023’s assumed rates of return (ARRs) (blue), and the average ARRs over the last 23 years (red).

The visualization reveals a clear skew: actual returns tend to cluster below the ARRs, with the assumed rates of return historically— even after recent revisions—averaging significantly higher than what was actually achieved. This discrepancy highlights a persistent overestimation of expected investment gains by pension plans.

The spread of actual returns also demonstrates considerable volatility, with a broad range of outcomes that are not fully reflected by the narrower distribution of ARRs. Notably, a substantial proportion of funds has realized consistently low returns, with 17% of plans in our sample achieving average yearly returns below 5.5% over the past 23 years.

This stark contrast between expected and actual performance underscores a critical problem: pension plans have consistently overestimated gains while underestimating potential losses. The distributions are biased toward the upper end, failing to account for the lower end of actual investment returns, which has contributed to ongoing funding challenges.

This chart compares the investment returns of public pension funds against the S&P 500 over a 5-year, 10-year, 15-year, and 20-year time horizon. The figure plots the excess average returns of 235 public pension plans, with red dots representing individual fund performances and the black dashed line indicating the S&P 500 benchmark (zero excess return).

The analysis reveals that over the past 20 years, the average return for public pension funds has consistently underperformed the S&P 500. While the S&P 500 achieved an average return of 9.7% over this period, public pension funds achieved 7.8% returns over the same period—with 99.5% of public pension funds underperforming the S&P 500.