U.S. public pension funds finished 2025 in much better shape than they appeared to be in midyear, as a late market rebound lifted returns and improved funding levels across much of the country. The final numbers gave lawmakers and retirement officials a more comfortable year-end story to tell, especially after a shaky spring had raised concern that many plans would once again miss their targets. Still, the stronger finish did not erase the basic pressures facing public retirement systems. Pension funds remain heavily dependent on market performance, many plans still carry large unfunded liabilities, and the difference between the best results and the more ordinary ones was wide enough to remind trustees that one strong year does not settle long-running funding problems.
| Key 2025 pension figures | Reported result |
|---|---|
| Equable estimated average return for U.S. public pension plans in 2025 | 9.53% |
| Share of plans beating their own assumed return | About 87% |
| Estimated national funded ratio | 82.5% |
| Estimated unfunded liabilities | $1.27 trillion |
| Connecticut Retirement Plans and Trust Funds calendar-year return | 14.0% |
| CalPERS preliminary return for fiscal year ended June 30, 2025 | 11.6% |
A weak midyear picture turned into a far better finish
The sharp change in the 2025 narrative is easiest to see in Equable Institute’s year-end update. In July, Equable estimated that state and local pension plans were on track for an average 2025 investment return of just 5.41%, based on data through June 30. By January, after the second half of the year played out and more plans reported updated figures, that estimate had climbed to 9.53%. That swing matters because it changed the tone of the year. Instead of another period of broad underperformance, public plans ended 2025 above the average assumed rate of return of 6.87%. Equable also estimated that the national funded ratio improved from 78.0% in 2024 to 82.5% at the end of 2025, while unfunded liabilities declined from $1.54 trillion to $1.27 trillion. Those are meaningful gains, especially for plans that have spent years trying to regain ground lost in earlier market downturns. But the stronger finish should not be confused with a clean bill of health. Equable’s own warning was that public pensions are still fragile even after three years of positive markets. The industry entered 2026 with better numbers, but not with the kind of margin that would make trustees comfortable if stocks or private markets stumble again.
Why year-end results looked so strong
For calendar-year plans, 2025 ended with a broad lift from both stocks and bonds. Callan’s year-end public DB analysis found that the median public defined benefit plan with a December fiscal year-end gained 13.8% in calendar 2025, nearly double the median assumed return of 7.0%. Callan said all major asset classes posted gains for the year, led by global ex-U.S. equities, U.S. equities, and core fixed income. That helps explain why results improved so much after a softer first half. Plans with more exposure to public equities and other growth assets participated more fully in the year-end rally. Plans with lower-risk allocations still benefited, but often not to the same extent. The headline improvement in pension returns was real, yet it was not evenly distributed. That distinction is important for readers because “public pensions” are often discussed as though they move together. They do not. Some systems run with larger allocations to public stocks, private equity, and credit. Others lean more heavily on fixed income, real assets, or defensive structures. In a strong market year, those choices can create very different outcomes even when plans face broadly similar long-term obligations.
Connecticut posted one of the year’s standout gains
Among the more eye-catching state results, the Connecticut Retirement Plans and Trust Funds reported a 14.0% calendar-year return for 2025. State Treasurer Erick Russell’s office said the gain extended a period of strong performance and came with a 12.4% three-year annualized return. That is the kind of result that naturally gets political attention. Connecticut has carried one of the country’s heavier pension burdens for years, so a double-digit investment gain offers short-term relief and can improve the state’s budget posture on paper. It does not wipe away decades of accumulated pension debt, but it does reduce immediate pressure and gives the state a better starting point than it had before the rally. At the same time, a result like Connecticut’s underscores how misleading a single national average can be. When one plan is up 14.0% and another lands much closer to its assumed return, both may be described as part of a generally improved pension landscape, but the policy implications are very different. One has more breathing room. The other may still be one bad year away from renewed strain.
CalPERS shows why comparisons need context
The California Public Employees’ Retirement System, the largest public pension fund in the country, reported a preliminary 11.6% net investment return for the fiscal year ended June 30, 2025. That result pushed fund assets to roughly $556.2 billion and beat its assumed rate of return. But side-by-side comparisons with calendar-year plans can be sloppy if the timing is not explained. CalPERS’ figure reflects a fiscal year ending in June, not December, so it captures a different slice of market activity than Connecticut’s 2025 calendar-year result. It also came with an important accounting detail: CalPERS disclosures noted that private equity and real assets were valued as of March 31, 2025, then cash-adjusted through June 30. That one-quarter lag is common in large institutional portfolios, but it still means some asset values are not marked in real time. For readers, that is more than a technical footnote. Private-market valuations can make performance look smoother than public-market moves would suggest. In good years, those marks may rise more gradually. In bad years, they can also take longer to show the full damage. That is one reason pension boards and outside analysts tend to be cautious about drawing sweeping conclusions from a single annual return figure.
The stronger numbers still mask deeper risks
There is no question 2025 ended better than it began. Funding ratios improved, more plans beat their assumed return, and the broader public-pension picture looked healthier by year end. Even so, several structural risks remain easy to spot. First, better returns do not change the fact that many systems are still far from fully funded. Equable’s 82.5% national funded ratio was an improvement, but it also meant a large share of promised benefits were still not matched by current assets. Second, recent progress has depended not only on investment gains but also on historically high contribution rates from governments, which compete directly with spending on schools, healthcare, and other services. Third, dispersion matters. Callan found that 2025 was another strong year for the median December plan, but not every system had the same asset mix, governance structure, or risk tolerance. Finally, the biggest plans continue to rely on private markets and other alternatives whose valuations arrive with a lag, which can complicate any simple reading of who truly performed best.
What 2025 really means for workers and retirees
The encouraging story is that public pension funds did not limp into 2026. They entered the year with stronger returns, improved funding levels, and a better cushion than many observers expected six months earlier. That matters for state budgets, employer contribution rates, and the long-term stability of retirement promises. The more sobering story is that 2025 did not solve the public pension problem. It bought time. For workers and retirees, that distinction matters more than the exact percentage posted by any one fund. A strong year can help. It cannot, by itself, guarantee that a plan facing long-term demographic strain, volatile markets, and a large unfunded liability is suddenly out of danger. That leaves public officials with the same core challenge they had before the rally: keep contributions disciplined, avoid treating one favorable year as proof that risks have disappeared, and make sure investment strategy and funding policy still line up when markets inevitably become less forgiving.
Paul Anderson is a finance writer and editor at The Financial Wire. He has spent seven years writing about investment strategies and the global economy for digital publications across the US and UK. His work focuses on making sense of economic policy, cost-of-living issues, and the stories that affect everyday Americans.
