Industry News

On March 5, 2026, Moody’s Ratings issued its report, State and Local Governments – US: Pension Investment Volatility Still Looms Over Government Credit Quality in 2026. Moody’s reported that pension investment volatility remains a credit quality risk for state and local governments in 2026.

According to the report, “the top pension risk facing state and local governments in 2026 is the potential for material investment losses. Many pension risk indicators continue to broadly improve for state and local governments, particularly lower adjusted net pension liabilities (ANPLs) and annual contributions that mostly meet or exceed our tread water indicator. But risks stemming from pension investment volatility remain pronounced. If future investment returns are volatile or significantly disappoint relative to assumptions, U.S. public pension systems will face asset accumulation challenges and require offsetting contribution hikes by governments.”

Other highlights include:

• Pension risk indicators continue to improve combining higher interest rates, strong investment returns and steady annual contributions.
• Generally, pension investment portfolios may be exposed to elevated volatility risk due to a significant portion of assets allocated to classes with high expected returns.
• The scale of state and local government pension assets relative to their revenues continues at historically higher levels. Investment losses could create asset losses that would need to be amortized with future contributions which carries the risk of unexpected cost increases to governments.
• For some governments, the practical capability to further increase pension contributions may be limited.

The report is available here.