A complete 50-state analysis of America's public pension crisis — who made the promises, who broke the math, and who pays when the gate comes down.
In the spring of 2008, the actuaries at the Illinois Teachers' Retirement System ran their numbers and found something troubling. The fund was supposed to earn 8.5% annually on its investments. Treasury bonds were yielding 4%. The gap between what the fund needed and what the market was offering had always existed, but it had never been quite this wide — and it was about to get much wider.
What happened next was not unique to Illinois. It played out in New Jersey, Kentucky, Connecticut, and across dozens of other states simultaneously. Fund managers caught between legally binding promises they could not break and a zero-rate world they had not anticipated made a trade. They walked away from the boring, safe, liquid assets their mandates had always assumed — and into a shadow banking system that promised higher returns in exchange for something they would not fully reckon with for another decade.
They traded liquidity for yield. Now the bill is coming due.
"The deal was explicit. The deal was legal. The deal was supposed to be permanent. And then the Federal Reserve changed the price of money, and the math stopped working overnight."
THE ACTUARIAL FICTION
Every public pension fund operates on an assumed rate of return — the annual percentage the fund expects to earn on its investments. This number is not chosen by actuaries to reflect market reality. It is chosen by politicians and trustees to minimize the contribution required today. The higher the assumed return, the lower the required contribution, the more money available for other budget priorities.
The national average assumed return is 6.87% as of 2024 — a number Equable Institute describes as higher than what should be considered reasonable today. When Treasury yields collapsed to near zero after 2008, funds had only two choices: dramatically increase contributions, or reach further out the risk spectrum. They reached. Every single one of them reached. The share of pension fund assets in private equity, real estate, and other alternatives has grown from 9.1% in 2001-2007 to 25.6% as of 2024. That is $1.4 trillion in pension assets now priced by valuation methods rather than market prices.
When a private credit fund gates redemptions during stress — suspending withdrawals — the pension funds holding those assets face an impossible choice. The monthly check to retirees does not pause. The obligation is legal. When a public fund runs dry, the bill falls to the taxpayer.
Key numbers: $6.6T total promised retirement benefits — $1.37T current unfunded liabilities — 80.2% national average funded ratio — 6.87% average assumed return — 25.6% assets in illiquid alternatives — 18 consecutive years below 90% funded.
Sources: Equable Institute State of Pensions 2024/2025, Pew Charitable Trusts, Reason Foundation Annual Pension Report.
COMPLETE 50-STATE PENSION SCORECARD
The following table shows every state ranked by funded status from most distressed to most secure, using the worst-funded primary pension system in each state. This approach reflects maximum taxpayer exposure — the system most likely to require emergency state intervention.
Rating key: CRITICAL = below 60% funded | SEVERE = 60-70% | TROUBLED = 70-80% | STABLE = 80-90% | STRONG = 90%+
Note: Each state has multiple pension systems. This table shows the worst-funded primary system in each state to reflect maximum exposure. Illinois, New Jersey, Kentucky, and Connecticut have multiple systems in critical condition — the aggregate exposure is worse than any single system suggests.
CRITICAL — Below 60% Funded
Illinois (TRS) — 40% funded — $77B unfunded — 7.0% assumed return — Largest teacher pension crisis in US. Pension holiday culture. Multiple systems all distressed.
Kentucky (KRS) — 44% funded — $43B unfunded — 6.25% assumed return — State employees system. Legislature has repeatedly underfunded. Court-mandated contribution reform ongoing.
New Jersey (PERS) — 50% funded — $91B unfunded — 7.0% assumed return — Multiple systems all severely underfunded. Highest per capita pension debt in nation.
Connecticut (SERS) — 52% funded — $36B unfunded — 6.9% assumed return — State employees. 2017 and 2022 reforms helped but funded status still critical.
South Carolina (SCRS) — 55% funded — $28B unfunded — 7.25% assumed return — Assumed return above Equable recommended range. Contribution increases legislated.
Hawaii (ERS) — 56% funded — $13B unfunded — 7.0% assumed return — High cost of living inflates liability. Limited reform options given political structure.
Mississippi (PERS) — 58% funded — $17B unfunded — 7.75% assumed return — One of highest assumed returns in country. Contribution increases politically difficult.
SEVERE — 60-70% Funded
Pennsylvania (PSERS) — 62% funded — $44B unfunded — 7.25% assumed return — Teachers system. $6.7M accounting scandal in 2021. Contribution burden rising sharply.
Rhode Island (ERSRI) — 63% funded — $5B unfunded — 7.0% assumed return — 2011 reforms by Gina Raimondo reduced benefits. Still recovering. Small state, large per-capita burden.
Alaska (PERS/TRS) — 64% funded — $7B unfunded — 7.38% assumed return — Closed defined benefit plan in 2006. Legacy liability still significant.
Colorado (PERA) — 65% funded — $29B unfunded — 7.25% assumed return — SB 200 reform in 2018 reduced COLA. Funded status improving but slowly.
Minnesota (MSRS) — 66% funded — $16B unfunded — 6.5% assumed return — Multiple systems. Conservative assumed return helps but legacy debt persists.
Michigan (MPSERS) — 67% funded — $31B unfunded — 7.05% assumed return — Teachers system. Hybrid plan created in 2017. Legacy liability still large.
Maryland (SRPS) — 68% funded — $20B unfunded — 7.4% assumed return — Unfunded liabilities grew $1.5B in 2024 despite strong markets — largest increase in nation.
Louisiana (TRSL) — 68% funded — $11B unfunded — 7.5% assumed return — High assumed return. Oil revenue dependency creates contribution volatility.
Arizona (ASRS) — 69% funded — $15B unfunded — 7.2% assumed return — Reforms in 2011 and 2016. Moving in right direction but significant deficit remains.
TROUBLED — 70-80% Funded
Oregon (PERS) — 70% funded — $26B unfunded — 6.9% assumed return — Supreme Court limited reform options. Employer contribution rates among highest in nation.
Massachusetts (SRBT) — 70% funded — $42B unfunded — 7.0% assumed return — Schedule to reach full funding by 2040. On track but long runway.
Missouri (MOSERS) — 72% funded — $8B unfunded — 7.0% assumed return — State employees. Relatively disciplined contribution history.
Alabama (TRS) — 73% funded — $12B unfunded — 7.5% assumed return — Teachers system. High assumed return. Strong 2024 investment returns helped.
Ohio (STRS) — 73% funded — $29B unfunded — 7.0% assumed return — Teacher pension crisis. 2023 governance controversy over investment losses. COLA suspended.
California (CalSTRS) — 74% funded — $107B unfunded — 7.0% assumed return — Teachers system. 2014 reforms on track. Largest dollar liability of any teacher fund.
Nevada (PERS) — 75% funded — $13B unfunded — 7.5% assumed return — High assumed return. Strong recent returns masked by high liability growth.
Texas (TRS) — 76% funded — $46B unfunded — 7.0% assumed return — Teachers. Legislature authorized contributions but structural gap remains.
Virginia (VRS) — 76% funded — $21B unfunded — 6.75% assumed return — Relatively conservative assumptions. Contribution compliance improving.
New Mexico (PERA) — 77% funded — $7B unfunded — 7.25% assumed return — Unfunded liabilities grew $600M in 2024. Reform discussions ongoing.
Kansas (KPERS) — 77% funded — $8B unfunded — 7.75% assumed return — One of highest assumed returns nationally. Bond issuance to fund pension in 2015.
Montana (PERS) — 78% funded — $2B unfunded — 7.15% assumed return — Small state. Manageable absolute dollar liability but significant as share of budget.
Arkansas (ATRS) — 78% funded — $3B unfunded — 7.15% assumed return — Teachers. Managed relatively well. Assumed return slightly above conservative threshold.
Oklahoma (OTRS) — 79% funded — $4B unfunded — 7.0% assumed return — Teachers. Reformed in 2011. Progress continuing.
STABLE — 80-90% Funded
North Dakota (TFFR) — 80% funded — $1B unfunded — 7.25% assumed return — Teachers. Small system. Oil revenue provides cushion for contributions.
Georgia (TRS) — 81% funded — $23B unfunded — 7.5% assumed return — Large system. High assumed return. Strong economic growth supports contributions.
Florida (FRS) — 82% funded — $36B unfunded — 6.8% assumed return — Largest state pension by membership. Relatively conservative assumptions. Well-managed.
Iowa (IPERS) — 83% funded — $7B unfunded — 7.0% assumed return — Disciplined contribution history. Risk sharing provisions in plan design.
Maine (MPERS) — 84% funded — $3B unfunded — 6.75% assumed return — Conservative assumed return. Steady contribution compliance.
Vermont (VSTRS) — 85% funded — $1B unfunded — 7.0% assumed return — Small system. Recent benefit reforms. On path to improvement.
Wyoming (WRS) — 86% funded — $1.5B unfunded — 7.0% assumed return — Wyoming approaching fully funded status.
Indiana (PERF) — 87% funded — $7B unfunded — 6.25% assumed return — Conservative assumed return. Hybrid plan components reduce future risk.
Delaware (SEPP) — 88% funded — $2B unfunded — 6.9% assumed return — Small, well-managed system. Consistent contribution compliance.
Idaho (PERSI) — 89% funded — $1.5B unfunded — 7.09% assumed return — Disciplined funding. Risk sharing in plan design. Strong investment performance historically.
STRONG — 90%+ Funded
North Carolina (TSERS) — 90% funded — $6B unfunded — 6.5% assumed return — Conservative assumed return. Decades of disciplined funding. AAA bond rating.
Washington (DRS) — 91% funded — $9B unfunded — 7.4% assumed return — Strong contribution history.
New York (NYCERS) — 92% funded — $14B unfunded — 7.0% assumed return — Required contributions made every year. Strong governance. NYC system separate and more stressed.
Nebraska (NPERS) — 95% funded — $1B unfunded — 7.5% assumed return — Strong investment performance and contribution discipline.
Utah (URS) — 96% funded — $3B unfunded — 6.95% assumed return — Hybrid plan adopted in 2011. Model for reform.
Tennessee (TCRS) — 97% funded — $2B unfunded — 7.25% assumed return — Decades of full contribution compliance. Conservative management.
New Hampshire (NHRS) — 97% funded — $1.5B unfunded — 6.75% assumed return — Conservative assumed return. Strong governance.
South Dakota (SDRS) — 100% funded — No unfunded liability — 6.5% assumed return — Fully funded. Cost-of-living adjustment tied to funded status — automatic stabilizer.
Wisconsin (ETF) — 103% funded — Surplus — 7.0% assumed return — Only state with surplus. Required contributions made every year since 1982 without exception. The gold standard.
D.C. (DCRB) — 105% funded — Surplus — 6.5% assumed return — Federal government backstop provides structural advantage. Conservative management.
Sources: Equable Institute State of Pensions 2024/2025, Pew Charitable Trusts State Pension Funding 2023, Reason Foundation Annual Pension Solvency Report 2024. Funded status reflects worst-funded primary system per state. Numbers rounded.
THE DOCUMENTED PREVIEWS
Detroit — 2013
Detroit filed the largest municipal bankruptcy in American history with $18 billion in debt. Pension obligations were treated as unsecured creditors. Retirees received pension cuts of up to 4.5% plus the elimination of cost-of-living adjustments. The city's General Retirement System was 77% funded when the crisis hit. Retirees discovered something they had never been told: a legal guarantee from a government is only as good as the government's solvency.
Puerto Rico — 2017
Puerto Rico's pension system was 1.7% funded when the commonwealth entered debt restructuring — essentially pay-as-you-go. Decades of pension holidays and unrealistic return assumptions had consumed every dollar. The restructuring cut benefits for current retirees. Bondholders — many of them hedge funds that purchased distressed debt at cents on the dollar — were paid before pensioners in the restructuring waterfall.
THE LIQUIDITY MECHANISM
The 2024 Equable Institute report found that 27.7% of public pension assets — $1.4 trillion — are now invested in private equity, real estate, and other alternatives that rely on non-public valuation methods. The danger is not just that these assets might be overvalued. The danger is that they cannot be sold quickly.
Gate closes — A private credit fund suspends redemptions during market stress. The pension fund cannot access its capital.
Check must go out — The monthly pension obligation is legally guaranteed and non-negotiable. It arrives on the first of every month regardless.
Three bad options — Sell liquid assets at distressed prices. Borrow against illiquid holdings at punishing terms. Request emergency state contribution — which means the taxpayer.
Taxpayer pays — All three paths lead to the same destination. The unfunded liability becomes an explicit obligation on state revenues — higher taxes, cut services, or both.
THREE THINGS TO WATCH
01 — Private Credit Redemption Gates — Q1 2026 BDC Earnings
BDC quarterly earnings reports in April and May 2026 will contain the first honest marks on energy-exposed leveraged loans. Watch for NAV markdown language and gating provisions. Blackstone BCRED NAV already slipped from $25.09 to $24.97. Watch the direction. When a major fund gates, pension funds holding those assets face the liquidity trap described above.
02 — Illinois and New Jersey Municipal Bond Spreads
The bond market is the most honest price of pension stress. Illinois and New Jersey GO bonds trade at a spread above AAA municipal benchmarks. Every basis point of additional spread represents the market's assessment of fiscal risk. When spreads widen, the bond market is seeing what the official actuarial reports are not saying. The spread does not lie.
03 — CalPERS Annual Report — Alternatives Allocation Percentage
CalPERS is the most sophisticated public pension fund in the world and the bellwether for the entire system. When CalPERS increases its allocation to alternatives and illiquid assets, every smaller fund follows. An increase signals the liquidity trade is deepening, not reversing.
The Bond Bro — Institutional Fixed Income Analysis
Subscribe to The Dispatch: bondbrodispatch.beehiiv.com
For educational purposes only. Not investment advice. April 2026.