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Pension Debt Balloons Across U.S. as Investment Returns Lag
31 Jul
Summary
- Unfunded pension liabilities grew to nearly $1.3 trillion in 2022
- Pension obligations as a share of state revenues reached 66% in 2022
- 34 states saw unfunded pension obligations grow relative to revenue since 2008
As of July 2025, the pension crisis facing U.S. states has deepened, with unfunded pension liabilities growing to nearly $1.3 trillion. This alarming trend is largely attributed to lower-than-expected investment returns, which have caused pension obligations to outpace state revenues.
In the past seven years, the share of state revenues dedicated to funding future pension costs has reached an unprecedented 66%. This significant increase, up more than 22 percentage points since 2008, has put a significant strain on state budgets, constraining their ability to invest in other public services.
While a handful of states, such as New York, South Dakota, Tennessee, and Washington, have managed to fully fund their pension obligations, the majority have struggled to rein in the growing liabilities. In fact, 34 states have seen their unfunded pension obligations increase relative to state revenues since 2008, with Illinois, New Jersey, Mississippi, Connecticut, and Kentucky facing the largest shortfalls.
As state policymakers grapple with this complex issue, they must balance the growing pension tab with other pressing spending priorities. Experts warn that if left unchecked, these long-term liabilities could continue to squeeze state budgets and limit future public investments.
