Public pension funding remains “fragile” but showed improvement in 2024
State and local governments contributed a record amount into public retirement systems in 2024, according to Equable Institute.
The funded ratio for U.S. state and local retirement systems in 2024 is on pace to reach 80.2%—a 6.2% increase compared with 75.5% in 2023, according to an analysis by the Equable Institute.
State and local pension plans saw investment returns average 10.3% in the past year, a “strong investment performance” compared with the average 6.87% rate of return expected for pension funds, according to Equable. Unfunded liabilities are expected to fall from $1.64 trillion in 2023 to $1.37 trillion in fiscal 2024.
However, Equable Executive Director Anthony Randazzo warned that despite strong pension fund investment returns, state and local retirement systems “remain financially fragile.”
“With only 80% of necessary assets in pension funds, there are significant contribution increases necessary to get more of today's $1.37 trillion in pension debt paid off before another financial crisis strikes,” Randazzo stated.
State and local governments contributed a record amount into public retirement systems in 2024, averaging 31.3% of payroll, or $180.7 billion, according to Equable. Equable estimated it will take years of performances similar to 2024 to break the "pension debt paralysis" prevalent in public pension plans.
Washington D.C., Nebraska and Tennessee had the highest ratios of funded pension plans in 2024 with 112.5%, 108.5% and 107.9%, respectively. States with the lowest ratios of funded pension plans in 2024 included Illinois (51.6%), Kentucky (54.1%) and New Jersey (56.6%).
A 2024 survey by the MissionSquare Research Institute found that 81% of public employees expressed concern that they will not have enough money to last throughout retirement, with 78% saying they are worried about not having enough money to live comfortably in retirement. Only 9% of surveyed public employees reported that their benefits were “very sufficient.”
Social Security Fairness Act signed into law
While the state of pension plans remains a concern for the public sector, a new bill signed into law by President Biden Jan. 5 is set to increase Social Security payments for more than 2 million former and current public employees.
The Social Security Fairness Act eliminates two provisions—the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)—that limited Social Security benefits for public employees with public pensions from work not covered by Social Security, according to the Social Security Administration (SSA).
The elimination of the WEP would see monthly benefits rise by an average of $360 for 2.1 million Social Security beneficiaries in December 2025, according to Congressional Budget Office (CBO) estimates. Eliminating the GPO, meanwhile, would see monthly benefits increase by an average of $700 for 380,000 spouses and by an average of $1,190 for 390,000 surviving spouses.
Lee Saunders, president of the American Federation of State, County and Municipal Employees (AFSCME), called the rescinding of the GPO and WEP a “historic victory” that followed “decades of relentless organizing.”
“Thousands of AFSCME members can now retire with peace of mind, and passionate jobseekers will be inspired to pursue these critical careers knowing their futures will be secure,” Saunders stated. “It’s a game-changer for public service.”
The SSA said it is still evaluating how to implement the act.