State and municipal pension funds will likely miss their investment targets this year and will probably not see meaningful improvements in their unfunded liabilities or funding ratios, according to Equable Institute’s “State of Pensions 2023” report released on Tuesday.

Unfunded liabilities climbed to $1.57 trillion in 2022, bringing the national aggregate funding ratio to 75.4% due to negative investment returns, Equable said in a release issued in conjunction with the report.

Equable now projects that the aggregate funding ratio for U.S. state and local pension funds will rise modestly to 77.4% in 2023 while unfunded liabilities will remain essentially flat at $1.49 trillion year over year, driven by underperforming investments.

These figures mark a return to the stagnant funding levels witnessed in the decade following the Great Recession, Equable noted in the release.

During the first half of 2023, while market returns improved over the bear market conditions of 2022, the 5.3% average first-half performance through June 30 of state and local pension funds’ investments have not met plan’s investment targets, Equable noted. Most public pension plans are now projected to underperform their assumed return targets of 6.9% on average, resulting in a marginal improvement in funding ratios, while unfunded liabilities will remain stable.

The report also found that public pension funds have more money in alternative investments like than at any point in history — both in dollar terms ($1.63 trillion) and in percentage of asset allocations (34.0%).

In addition, employer contribution rates have passed 30% of payroll on average for the first time in U.S. history, while about 73% of costs are for unfunded liability payments.

Unfunded liability payments have mushroomed to more than $100 billion in 2022 from below $5 billion in 2001.

States have also continued to slightly lower their investment assumptions — the average assumed rate of return is now 6.88%, down somewhat from 6.92% in 2022 — which marked the first dip below a 7% average in modern history.

Looking ahead, Equable’s analysis determined that the long-term outlook for pension funds will likely be shaped by “converging pressures of risk addiction, market uncertainty, and increasing politicization of asset management activities.”

Anthony Randazzo, Equable’s executive director, stated in the release that “the increasing addiction to investment risk has meant exposing public employee retirement assets to the volatility of highly interconnected global markets.”

The report analyzed trends in public pension funding, investments, contributions, cash flows, and benefits for 225 of the largest statewide and municipal retirement systems in all 50 states — i.e., retirement plans with at least $1 billion in accrued liabilities.

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