Yes, they do and they bite. State governments with risky defined benefit pension plans have higher borrowing costs, as evidenced by larger bond offering yield spreads. To control for endogenous issue, we use the average corporate pension funding ratio and investment risk in the same state as instrumental variables. We further identify the relation between pension plan investment risks and borrowing costs using two quasi-experimental shocks: the introduction of a defined contribution plan or a hybrid plan, and a state political regime shift. The effect of pension investment risk becomes stronger for states with large variations in pension contributions and greater financial constraints. These results indicate that pension investment risks trigger subsequent unexpected pension contributions and cash flow shocks for state governments, which are potential drivers of higher state borrowing costs. Additional tests show a stronger association between pension fund investment risks and state municipal finance for states with larger union membership and better pension law protection.