State retirement systems remain fragile as of the end of the third quarter, with investment performance of state and local pension funds falling short of targets. This is a concerning trend, as each year investment returns underperform expectations, a vicious cycle perpetuates wherein contributions are being fully consumed by benefit payments, pension funds rely on investment returns to make up the balance, and pre-fund benefits for active members are not being fully funded, according to Equable Institute.
State and local pension funds were impacted by the bear market in 2022 followed by the community bank uncertainty before markets rebounded this past summer. The average funded ratio for U.S. state and local pension funds is expected to improve from 75 percent to 78.8 percent this year, and unfunded liabilities will decline slightly, from $1.59 trillion last year to $1.39 trillion this year, according to Equable Institute's State of Pensions midyear update.
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