The healthiest year on record for U.S. pension funds was 2001. Collectively, retirement systems across the country were 94.1% funded. Unfunded liabilities were just $79.3 billion. Since then, the funded ratio of pension plans has fallen significantly. In 2007, just before the financial crisis, the funded ratio was 92.1%. By 2017, it fell to 70.9%. As of 2025, it sits at 82.5%.[1]
These numbers might sound scary, but why does funded status matter in the first place?
Why Does Funded Status Matter?
Funded status is important because it measures whether or not the funding of a pension plan can keep up with the retirement benefits it has promised.
- Unfunded liabilities measure the shortfall between assets in the fund and the liabilities of the plan (i.e., promised benefits).
- The funded ratio measures the relative balance between assets and liabilities. When we say the nation’s pension plans are 82.5% funded, we mean they have reported around $7.26 trillion in promised benefits and have roughly $5.99 trillion in assets.
The funded status of a pension fund is a snapshot at a single point in time that can provide a quick assessment of fiscal health and indicate whether further attention is warranted.
The Many Tools of Funded Status
While the funded ratio of a pension plan provides a helpful snapshot measure of funding progress on its own, it should never be considered as the only measure of fiscal health.
The dollar amount of unfunded liabilities implied by the funded ratio matters, too. Especially relative to the ability for the government sponsoring the pension plan to pay for that pension debt.
Nationally, the shortfall for U.S. pension funds was $1.27 trillion, or 4.1% of GDP, in 2025. So, at 82.5% funded, there is still plenty of money sitting around to pay promised benefits today, but the cost of backfilling the shortfall in assets that 82.5% funded ratio represents — so that every pension promise is kept — will require an enormous amount of capital.
For any given state, it is helpful to consider the funded status alongside the unfunded liability and the ability for the sponsoring government to cover that funding shortfall. A 90%-funded pension plan with $20 billion in unfunded liabilities that are 4% of state GDP may be in more trouble than a 60%-funded pension with a $1 billion shortfall that is 0.5% of state GDP.
See Equable’s Funded Ratio Rankings for a sense of how the current 82.5% national funded ratio breaks out from plan to plan and state to state.
Problems Beneath the Surface
A key way to think about funded status is as a snapshot based on a pension plan’s current accounting rules. In other words, the financial picture could be better or worse depending on alternative assumptions or methods.
Assumed Rate of Return
First, the funded status of a pension plan is very sensitive to the assumed rate of return and discount rate adopted by the board.
For example, Texas Teacher Retirement System (TRS) used an 8% assumed rate of return for nearly two decades and going into calendar year 2018 reported it was 81% funded. In August 2018, the TRS board adopted a 7.25% assumed rate of return, which meant revaluing its promised benefits. The reported value of liabilities jumped from $182 billion to $200 billion, meaning its unfunded liabilities increased from $34 billion to $45 billion. The TRS funded ratio fell to 77%.[2] Nothing changed with the health of TRS except that the board improved the reasonableness of its assumptions.
Nationally, the funded status of public pension benefits is closer to 59.1% using different accounting principles.[3]
Value of Assets
Second, the way assets are valued also matters. Pension funds can report their funded status using actuarial value or market value. Because actuarially valued assets typically phase in investment gains and losses over a five-year period, in the years after a sharp market downturn the funded status on an actuarial basis might look better than it is in reality (though measuring this way avoids overemphasizing one bad year of volatility). By contrast, in the year after a strong investment return, the funded status on an actuarial basis might not look as healthy as it is on a market basis.
Why 80% Funded is Not Good Enough
Ideally, the funded ratio of a pension plan is 100%, with $0 in unfunded liabilities. Of course, a pension plan might fluctuate from year to year around that mark. Over time, however, a pension plan should aim to stay consistently fully funded.
In any given year, the funded ratio could be 90% or 80% without cause for concern. The problems emerge when a pension fund consistently performs at a lower-than-ideal level year after year. Remaining persistently 60% or 80% funded means maintaining an unfunded liability and, as a byproduct, unfunded liability amortization payments. Continuously maintaining a low funded ratio means perpetual pension debt payments, which take money away from other public goods and services.
Several years ago, a myth emerged that an 80% funded ratio was “good enough.” This was resoundingly rebuffed by the actuarial community. It is reasonable to think that since, at 80% funded, there is plenty of money to pay benefits, there shouldn’t be concerns about the fiscal health of a pension plan.
However, problems emerge when a pension plan is 80% funded persistently year after year. Among those problems is that persistent payments to backfill unfunded liabilities crowd out dollars otherwise intended for infrastructure spending, park improvements, or programs to support education equity, for example.
Funded Status is an Indicator, Not a Destination
Ultimately, funded status provides a target for fiscal responsibility. It helps pensions to regularly assess whether the factors going into the funded status are accurately measured. Are assets growing at a rate necessary to keep promises to public workers? Are benefit values being accurately measured? Is the value of assets being appropriately measured? Is the funded ratio relative to the ability of the sponsoring government to backfill any funding shortfall a concern?
Funded status is important as a measure of progress or erosion and should be just the first step in understanding what can be done to ensure the long-term sustainability of a retirement system.
Notes
- Source: State of Pensions Funded Ratio and Unfunded Actuarial Liability calculated by Equable Institute
- Source: Teachers Retirement System of Texas actuarial valuations for fiscal years ending 2017 and 2018.
- Source: Market Funded Ratio calculated by Equable Institute
