New Data Reveals the Best and Worst States for Retirement Security as Pension Gaps Remain

America’s public pension systems are collectively holding trillions of dollars, but the money is not distributed evenly across the country. Some states have accumulated enough assets to cover nearly every dollar promised to workers. Others remain buried under decades of unpaid obligations.

The difference matters far beyond government offices. A financially healthy pension system can provide retirees with reliable monthly income while protecting taxpayers from sudden increases in pension costs. A struggling system can force a state to pour more money into old debts, leaving less for schools, roads, emergency services and other public needs.

America’s pension picture is improving, but the gap remains enormous

The national outlook strengthened during 2025 as investment markets recovered and governments increased their pension contributions. The average funded ratio for state and local retirement systems was estimated to rise from 78 percent in 2024 to 82.5 percent in 2025. Total unfunded liabilities were expected to fall from $1.54 trillion to approximately $1.27 trillion.

A funded ratio compares a pension system’s assets with the value of benefits already promised to workers and retirees. A system that is 100 percent funded theoretically has one dollar in assets for every dollar it owes. A system funded at 60 percent has only 60 cents for every promised dollar.

That does not mean an underfunded system will immediately stop sending checks. Pension benefits are paid over many years, and state governments can continue contributing money. Still, a large funding gap creates pressure because future taxpayers and employees may be asked to cover obligations that should have been funded earlier.

The country’s largest public retirement systems held about $5.13 trillion in assets at the end of fiscal year 2024. Their aggregate actuarial funding level stood at 76.7 percent, up slightly from 75.8 percent one year earlier. The median funding level among the plans surveyed was 77.8 percent, but individual systems ranged from 28 percent to 108 percent funded.

Those numbers reveal a retirement system divided by geography, investment performance, and political decisions.

Tennessee, Washington, and South Dakota lead the country

Only three states reported no aggregate unfunded public pension liabilities at the end of fiscal year 2024. Tennessee’s systems were approximately 104 percent funded, Washington’s were 102 percent funded, and South Dakota’s were 100 percent funded. Six additional states had funding levels above 90 percent.

Workers in these states are not guaranteed a problem-free retirement. Investment losses, demographic changes, or benefit increases could weaken even a well-funded system. However, strong funding gives governments more room to absorb economic shocks without immediately demanding higher contributions from employees or taxpayers.

Well-funded systems also have another advantage. More of each new contribution can support benefits earned today, rather than paying interest on pension debt created decades ago.

Tennessee, Washington, and South Dakota did not reach full funding simply because their investments performed well in a single strong year. Long-term pension stability usually reflects consistent government payments, realistic financial assumptions, and policies that share risk between employees, employers, and taxpayers.

A pension fund can earn impressive returns and still fall behind if lawmakers repeatedly contribute less than required. Likewise, a government can make large payments but see little improvement when accumulated debt has become too expensive.

Illinois carries the country’s heaviest pension burden

At the opposite end of the rankings, Illinois had the lowest statewide funded ratio, with enough assets to cover approximately 52 percent of promised benefits. Kentucky followed at 54 percent, New Jersey at 55 percent, Mississippi at 56 percent, and Connecticut at 59.5 percent.

Illinois also carried about $201 billion in unfunded pension liabilities at the end of fiscal year 2024. That worked out to roughly $15,804 in pension debt for every state resident, the highest per-person burden in the country.

Connecticut’s pension debt reached approximately $10,151 per resident. Alaska, Hawaii, New Jersey, Mississippi, New Mexico, and Kentucky also had pension debt exceeding $8,000 per person.

California had the largest total shortfall at approximately $265 billion, partly because it has a much larger population and public workforce. Texas reported about $92.2 billion in unfunded liabilities, while New Jersey’s shortfall stood near $92 billion. Pennsylvania and Ohio each carried more than $60 billion.

Large pension debt can affect residents who never worked for the government. States and cities must make annual employer contributions funded by public budgets. As pension costs rise, elected officials may face difficult choices involving taxes, employee contributions, public services, or borrowing.

Public workers also have an important reason to monitor these figures. Unlike many private-sector defined-benefit pensions, state and local government pension plans are not insured by the federal Pension Benefit Guaranty Corporation.

States provide their own legal protections for benefits, and those protections vary. Retirees may continue receiving their promised checks even when a pension fund is deeply underfunded, but taxpayers could face years of rising costs to keep those promises.

A strong pension fund does not automatically mean a richer benefit

A state with a fully funded retirement system does not necessarily pay the highest pensions. Funding measures whether money has been set aside for promised benefits, not how generous those benefits are.

One state may offer modest benefits and fund them responsibly. Another may promise larger payments but fail to contribute enough money. Workers must therefore examine both the financial condition of their system and the benefit formula used to calculate their retirement income.

Retirement calculations may depend on salary history, years of service, retirement age, and cost-of-living adjustments. Some workers also participate in Social Security, while others rely more heavily on their government pensions and personal savings.

Employees should review their retirement system’s annual financial report, contribution history and funded ratio. They should also determine whether health insurance, survivor benefits, and inflation adjustments continue after retirement.

A single annual funding number cannot tell the entire story. Pension systems use different accounting methods, investment assumptions, and schedules for recognizing market gains and losses. Even researchers can produce different national funding estimates because they measure assets and liabilities differently.

Still, the broad pattern is difficult to ignore. Tennessee, Washington, and South Dakota enter future economic downturns with stronger pension cushions. Illinois, Kentucky, New Jersey, Mississippi, and Connecticut have less room for error.