On the surface, public pension funds are having a great year so far.
A recent report for the Equable Institute showed that pension funds are at their best funded status since the 2008 financial crisis' market bottom. States are meeting their required contributions, and 15-year-old amortization schedules are starting to outpace interest on pension debt.
The national funded ratio is at its best since 2009 at 85%, the gap between funds' assets and liabilities is $210 billion less than 2025, and the employer contribution rate reached a historic high of 31.83% — three times more than 2001, according to Equable Institute's 2026 pension report.
The report analyzes trends in public pension funding, investments, contributions, cash flows, and benefits for 253 of the largest statewide and municipal retirement systems from every state.
Despite strong projections and positive growth, observers remain skeptical.
"I would caution anyone just to look at that funding ratio because that is far from telling the story," Bond Buyer Intelligence Analyst Jeff Lipton said. "I don't mean to say that you know an 85% funding ratio is insignificant, but… you have to look under the hood. You have to look at the underlying assumptions."
"A reasonable mind can look at this [closing gap] and can say it's better, but not a lot better," Equable's Executive Director Anthony Randazzo said. The data shows that "by no means is the system recovered, it's just generally trending in an upward direction as opposed to a downward direction."
The fragility of these pensions depends heavily on market volatility, asset valuation accuracy and asset concentration.
The report highlights three key areas of risk when looking at the pension performance: "nearly 60% of public plans remain fragile or distressed." More than a fourth of public pension assets could be incorrectly priced based on the valuations used to determine their value and about 8% to 10% of public pension assets sit in A.I. companies, which creates a concentration risk.
The current evaluation of pensions is based on pensions being able to pay 85% of future benefits, which depends on public plans averaging a 6.9% rate of return every year in the future, Randazzo said.
"So, because we're taking all those future benefit payments, we're saying we're going to pay all those in the future, and we're going to use today's assets, and they're going to keep growing," he said. "And the average assumption for all those pension plans is that they're going to earn a 6.9% rate of return. That has roughly a 50/50 chance of being true."
Randazzo explained how if public plans operated at 100% they'd be able to incur a few years of market downturns; however, operating at 85% two bad years "could change the whole trajectory of this improvement."
Another source of concern is that 27% of public pension assets could be overpriced or underpriced, presenting a potential valuation risk.
"It's great that we're at 85% funded, but Equable has a universe of about 250 public plans," Lipton said. "That 27% exposure is extraordinarily high."
The Institute tabulated $6.4 trillion of assets and a portion of those assets were priced using private equity, private debt and real estate evaluations.
"If those are wrong, and the value of those assets is a lot less than what a general partner of a private equity fund says that they're worth, then they may not have as many assets as they think," Randazzo said. "It's not like this is $6.4 trillion of cash in the bank and we know it's definitive."
Finally, the report acknowledges the gamble of investing a large portion of capital into one area. Collectively, public pension investments have a concentration of assets in AI companies; this means that future pension success is reliant on the adoption and market performance of AI.
"I just look at these numbers, these allocations, and I think they're too high," Lipton said.
While Randazzo and the institute did not take a firm stance for nor against AI, it acknowledges that "it's a very big bet on one thing" and that firms could potentially pigeon-hole themselves.
"As the broader basket of AI companies move in concert, so goes the assets of public plans … Then also the private equity valuations related to these companies are moving in tandem with the public markets, and that creates an overall concern that there's nowhere to hide," he said. "That if the public pension plans wanted to try and take a different investment strategy, they are so concentrated in this bet that it's very difficult for them to take another approach."
As of right now, it is unknown whether or not future benefits are truly higher. Even though the numbers reflect positive funding efforts, the market performance will determine whether or not they will continue their upward trend.
