Managing a public pension system is a long-term commitment built on trust and transparency. Trustees and administrators are tasked with navigating market uncertainty, fiscal pressure, and public accountability while ensuring that retirement benefits remain secure for both active and retired public employees.

A recent research paper examines the effectiveness of U.S. public pension systems in managing this responsibility.

The report, Do US Public Pensions Manage Risk Effectively? A Review of 38 Public Pensions was published Dec. 3, 2025, and written by Arun Muralidhar, an adjunct professor of finance at Georgetown University and former World Bank Treasury official, and Sid Muralidhari, founder of Risktyle Consulting and a former global markets strategist. The study examines 38 U.S. public pension systems, representing assets exceeding $3 trillion, across states with diverse political, economic, and governance environments.

Rather than ranking plans or highlighting short-term performance, the authors set out to understand why many public pension systems remain underfunded decades after major market downturns and what risk management and governance practices are most closely associated with stronger long-term outcomes. The analysis draws on long-term historical data, including periods of market stress such as the 2008 financial crisis and the 2022 market correction.

One of the study’s central conclusions is that asset-liability risk remains the most significant risk facing public pension systems, yet it often receives less attention than asset returns or manager selection. The authors find that asset-liability mismatch accounts for more than 90 percent of pension risk in defined benefit plans, but many investment strategies remain focused primarily on asset performance rather than liability alignment.

Using historical performance and funding data, the report shows that the average funded status of the systems reviewed was approximately 79 percent in 2025, down from levels above 100 percent before 2000. That figure is based on relatively generous discount rate assumptions, suggesting funding challenges could appear more severe under market-based measures.

The research also challenges the assumption that taking on more investment risk leads to better outcomes. Approximately 74 percent of the systems reviewed exhibited more volatility than their benchmarks, yet only about 58 percent were adequately compensated for this additional risk. During major market downturns, more than half of the systems experienced drawdowns that were worse than their benchmarks, raising questions about how effectively downside risk is being managed.

Active management results were mixed. While nearly three-quarters of the funds generated positive excess returns over time, only about half demonstrated a high level of confidence that those results reflected repeatable skill rather than chance. Fewer than four in 10 reached the highest confidence thresholds used in the study.

Size alone did not explain better outcomes. Larger systems were not consistently better funded or more effective at managing risk. What did emerge as a consistent differentiator was governance. Systems with clear separation between board oversight and staff execution, stable leadership, well-defined roles, and continuity in decision-making tended to demonstrate stronger funded status and better control of volatility and drawdowns.

For trustees and administrators, the findings reinforce several practical considerations. Board discussions benefit from staying focused on asset-liability alignment, not just returns. Governance structures should support disciplined, long-term decision-making rather than short-term reactions to market cycles. Traditional peer comparisons, while common, may offer limited insight if they encourage conformity instead of thoughtful, fund-specific judgment.

A related podcast discussion delves into the report’s findings in more detail and examines their implications for public pension fiduciaries.

The full research paper is available for download at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5891382.

About the Author: Allen Jones serves as TEXPERS' Director of Communications and Event Marketing. He brings more than two decades of experience in journalism and publication management and now guides the Association's strategic communications. [email protected]