Industry News

On September 16, 2025, S&P Global Ratings published its report, U.S. Local Government Pension Funding Improved in Fiscal 2024, Helping to Buoy Credit Ratings. In the report, S&P Global Ratings assesses the U.S. local government pension funding levels.

​For some local governments, the report indicates that pension costs may have been a strain on their credit quality over the years. However, over the last two years, S&P Global Ratings has observed an improvement in pension costs and funded levels for local governments (including municipalities, counties and school districts). From fiscal year 2022 to fiscal year 2024, the median pension costs as a percentage of governmental revenues declined from 4.7% to 4.5%. In addition, the aggregate median funded ratio for U.S. local government pensions increased from 78% in fiscal 2022 to 80% in fiscal 2024.

Some factors that have contributed to the decline in pension costs and the improvement in pension funding levels include:

• For fiscal 2024, investment returns are estimated at 16%-17%, which exceeds the typical annual asset return assumptions of 7% for U.S. government pension plans. As a result, the asset growth may help to improve funded ratios.
• Since 2010, some plans have implemented new benefit tiers, which may lower costs as the working population grows under the new benefit tiers.
• Funding discipline is helping to control pension costs. Overall, local governments have made significant progress toward pension funding in fiscal 2024.

According to S&P Global Ratings, municipalities have experienced greater gains than counties and school districts. Typically, pension costs for municipalities and school districts have a larger impact on the issuer credit rating, but counties usually have lower pension costs and their ratings are less directly impacted.

Recent positive market returns have helped to improve funded ratios. In fiscal 2024, local governments have worked to increase contributions, which improves funding discipline. Further, many local governments have made valuable changes to their benefit structures. These actions combined help to support their long-term financial sustainability.

In addition, the report states, “Continued efforts toward pension funding could reduce not only costs but cost volatility and help support credit quality.”

The report is available here.