Municipal Pension Crisis 2026: Cities With the Worst Pension Funding
Published April 6, 2026 · Public Plans Database + Census Bureau data
Unfunded pension liabilities represent the largest hidden debt on many city balance sheets. Across the country, cities collectively owe trillions in pension benefits they haven't fully funded. Some cities have set aside less than half of what they'll need to pay retirees. This analysis ranks cities by pension health using data from the Public Plans Database.
25 Cities With the Worst Pension Funding
A funded ratio below 60% is considered severely underfunded by actuarial standards. These cities face the greatest risk of their pension obligations crowding out essential services or requiring dramatic tax increases.
Largest Unfunded Liabilities by Dollar Amount
While the funded ratio measures relative health, the raw dollar amount of unfunded liabilities shows the absolute scale of the problem. A few cities dominate this list — their pension gaps run into the tens of billions.
Best-Funded City Pensions
Not all cities face a pension crisis. Well-managed pension systems maintain funded ratios above 90%, often through disciplined annual contributions and conservative investment assumptions.
What Caused the Municipal Pension Crisis?
- Benefit promises during boom years: Many cities expanded pension benefits in the late 1990s and early 2000s when investment returns were high, assuming double-digit returns would continue.
- Skipped contributions: During recessions, cities facing budget shortfalls often deferred pension contributions — kicking the can down the road.
- Optimistic actuarial assumptions: Many plans used 7–8% assumed return rates, which understated the true liability. More conservative assumptions (5–6%) reveal much larger gaps.
- Demographic shifts: Longer lifespans mean cities pay benefits for more years. Combined with early retirement provisions, the payout period has stretched beyond original projections.
- Investment losses: The 2008 financial crisis wiped out trillions in pension assets. Many plans still haven't recovered to pre-crisis funded levels.
Frequently Asked Questions
What is a pension funded ratio?
The funded ratio measures a pension plan's assets as a percentage of its projected liabilities. A plan with a 70% funded ratio has $0.70 in assets for every $1.00 it owes in future pension benefits. Financial experts generally consider plans below 80% to be at risk.
Which U.S. city has the worst pension funding?
Cities like Chicago, Dallas, and several New Jersey municipalities have historically had among the most severely underfunded pension systems.
What happens when a city pension runs out of money?
When a pension plan becomes severely underfunded, the city faces several options: raising taxes to increase contributions, reducing benefits for new employees, issuing pension obligation bonds, or in extreme cases, seeking state intervention or bankruptcy protection (as Detroit did in 2013). In most states, existing pension benefits are constitutionally protected.
How does pension debt affect city services?
Underfunded pensions crowd out other spending. Cities with large pension obligations may spend 15–25% of their budget on pension contributions alone — money that cannot fund police, roads, or parks. This is sometimes called the "pension squeeze" on municipal services.
About This Data
Pension data is from the Public Plans Database maintained by the Center for Retirement Research at Boston College, the National Association of State Retirement Administrators (NASRA), and the Government Finance Officers Association (GFOA). Funded ratios and unfunded liabilities reflect the most recently reported fiscal year. See our methodology.