Figure 1 tracks the rise of public pension debt from 2001 through 2024, using market values for assets, with projections for 2025 and a stress test for 2026.

The stress test applies either a 0%, -10%, or -20% market return in fiscal year 2026—pension funds experienced -20% during the Great Recession—to see how well today’s pension systems could weather another major market shock. Under the worst of these scenarios, the average funded ratio across U.S. pension systems would drop to 63%, revealing how vulnerable these plans remain to market volatility despite years of supposed recovery. The stress test is particularly important given how market crashes have historically had a major impact on pension funding that lasts decades.

Figure 2 shows the widening gap between what public pension funds have (assets in green) and what they owe (liabilities in purple) from 2001 to 2024, with projections through 2025 and stress tests for 2026. The stress tests model three scenarios for 2026: flat returns (0%), a moderate decline (-10%), and a severe market crash (-20%), shown by the dashed lines below the baseline projection.

The chart illustrates how pension assets tend to fluctuate dramatically with market performance, while liabilities grow steadily regardless of market conditions. During downturns, this creates a scissors effect: assets fall as the gap between assets and liabilities widens.

Under a -20% stress scenario, many pension systems would fall into critical underfunding territory, forcing states and localities to face tradeoffs between massive taxpayer-backed bailouts or benefit cuts for retirees. The stress test reveals how decades of moderate progress can evaporate when markets turn south.

The charts above track how pension funded ratios have bounced around since 2001 and shows where they could be headed under three different market scenarios through 2026. A funded ratio of 100% means a plan has enough money saved to pay all the benefits it has promised. Anything below that represents debt that government employers (and therefore, taxpayers) will eventually need to cover.

The three 2026 scenarios show just how much pension funding depends on market performance: a flat year with 0% returns, a moderate decline with -10% returns, and a severe crash with -20% returns.

Figure 3 breaks down the share of public pension debt between the states (dark blue bars) and local governments (orange bars), from 2001 through 2024.

State pension systems carry the bulk of the nation's public pension debt. Of the $1.48 trillion in total unfunded liabilities in 2024, state plans held $1.29 trillion (87% of the total) while local plans accounted for $187 billion (13% of the total).

This distribution shows where the financial risks lie. Taxpayers face mounting pressure from multiple directions: their state government is dealing with massive pension obligations while their local governments struggle with their own growing liabilities. State pension debt forces difficult budget choices that affect everything from education funding to infrastructure spending, while local pension debt drives up property taxes or forces cuts to municipal services like police, fire, and public works.

Each dot on Figure 4 represents a state or pension pension plan in 2024. Where it sits horizontally shows its funded ratio based on actual market values: how much the state/plan has saved versus what it owes.

This clustering reveals that pension funding problems aren't isolated to a few outlier states and systems. The distribution is skewed toward lower funding, with very few plans achieving funded ratios significantly above 100%. The absence of well-funded outliers suggests that even the "better" pension systems aren't building the kind of financial cushion that would protect them from future market shocks or demographic changes.

Figures 5 shows what happens to pension debt and funded ratios when you use different discount rates to calculate what future benefits are worth today. Since pension plans across the country use wildly different assumed rates of return in their own calculations, this analysis standardizes the discount rate to give a clearer picture of the real scope of the problem.

The red markers show total unfunded liability and funded ratios using each plan's own reported assumed return rate. The other markers reveal how debt increases and funded ratios decrease when you recalculate using more conservative, standardized discount rates: 7%, 6.5%, and 6%. The pattern is clear: lower discount rates mean dramatically higher calculated debt and lower funded ratios for any given year.

The national aggregated unfunded pension liability was $1.48 trillion, and the aggregate funded ratio was 79% in 2024. If all pensions used a 7% assumed rate of return, the aggregate unfunded liability would have been $1.39 trillion, and the funded ratio would have been 80%. If pensions assumed 6.5%, the aggregate unfunded liability would have been $1.77 trillion, and the funded ratio would have fallen to 76%. Finally, if pensions assumed 6%, the aggregate unfunded liability would have been $2.19 trillion, and the funded ratio would have further fallen to 71%.