Industry News

On July 8, 2025, the National Association of State Retirement Administrators (NASRA) released their report, Sustainability Provisions for Public Pension Plans with Fixed Employer Contributions. NASRA explored various approaches that some plans use to balance the adequacy and stability of employer contributions.

According to NASRA, “Most public pension plan contribution policies are set in statute and fall into one of two broad types: variable or fixed rate. Under variable rate policies, the employer’s contribution rate generally fluctuates with the actuarially determined contribution rate, which changes based on the plan’s actuarial experience. As the name suggests, fixed-rate policies feature an employer contribution that is fixed in statute as a percentage of payroll. This rate is stable and changes rarely or incrementally, typically through legislation or in some cases, automatic adjustment provision.”

In some cases, “to address plan sustainability in the context of fixed contribution rates, many such plans must adopt mechanisms that result in the adjustment of contributions or, in certain circumstances, benefits, to help maintain plan sustainability. So, in another sense, a third category of funding approach – neither variable (actuarially-based) or fixed, but rather, specific (stated in law, but adjustable at certain times and to certain extents) – may be required to accurately characterize some public pension plans.”

Some of the key findings include:

• Depending on actuarial experience, fixed employer contribution rates provide budget stability for employers, but may result in funding shortfalls.
• Many plans referred to as “fixed-rate plans” use various strategies to maintain actuarial balance, such as benefit modifications, statutory adjustments or supplemental funding sources.
• Some plans display various characteristics of both fixed and variable contribution policies, which may demonstrate the need for adaptable funding strategies.  

The report concludes, “Although a variable-rate approach is designed to ensure that contributions adjust to maintain actuarial balance, it can also create budget uncertainty for employers. Fixed-rate policies, on the other hand, offer stability but may lead to funding shortfalls or surpluses depending on economic and demographic conditions or changes in actuarial methods and assumptions. The sustainability of fixed rate plans in many cases depends on mechanisms such as funding adequacy assessments, statutory flexibility, and supplemental revenue sources to promote actuarial balance. As demonstrated by the practices of several public pension plans, the distinction between fixed and variable funding approaches is increasingly blurred, with many so-called fixed-rate plans incorporating elements of flexibility to ensure long-term financial stability. Ultimately, the effectiveness of any pension funding policy depends on its ability to adequately fund the plan’s long-term liabilities.”

In addition, the report includes an appendix with selected examples of sustainability provisions for public pension plans with specific employer contribution rates that differ in their approach, scope and magnitude.

The report is available here.