U.S. corporate pension funding hit record highs in 2025, but fewer than one-third (32%) of defined benefit plan sponsors have a long-term objective to terminate their plan, Aon reported in its Global Pension Risk Survey 2025.
Over the past decade, U.S. corporations have made significant progress in shrinking the size of their pension obligations via lump sum and annuity transactions. At year-end 2012, the average large DB plan sponsor had a global pension benefit obligation of about 28% of the company’s market capitalization and a pension funding deficit of 11% of market cap. By December 31, 2025, those levels dropped to 10% and 0%, respectively.
“Pensions are generally better funded than they have been in the last 10 years,” says Tim Herron, a senior partner in Aon’s retirement consulting practice. “Generally speaking, there’s less concern [among plan sponsors], but there are still material obligations that reside on the balance sheet.”
The PLANSPONSOR 2025 Defined Benefit Administration Survey, published in September, reported data about 18,122 U.S. DB plans and found that 29% of those are active or open, 47% are frozen, 23% are closed and 1% are terminated. Additionally, the survey found among participants who received plan de-risking payment offers, 27% accepted a lump-sum and 36% accepted an annuity, while 37% did nothing.
Alternatives to Terminating
For Plan Sponsors Seeking to Manage and Maintain Their Plans:
- Most ongoing plans are still on a path to de-risk, but an increasing proportion are now considering taking more risk over the long-term.
- Many plan sponsors intend to shrink their plans through lump sum windows and retiree annuity lift-outs, though there’s evidence that this activity may be plateauing.
- Investment changes continue the prior trajectory to more liability-hedging assets, greater customization of those liability-hedging assets (including using derivatives), and less equity exposure.
- Many plan sponsors appear to be unaware of how the benefits of OCIO often increase as plans decrease their investment risks.
- Many plan sponsors have not yet changed their investment policies in light of today’s much higher interest rates.
- Strong awareness about fiduciary liability insurance continues.
- Plan sponsors are still figuring out how to monetize their surplus.
Source: Aon Global Pension Risk Survey 2025 – U.S. Findings
Among those plan sponsors intending to maintain their plans for the long term, 54% told Aon they planned to maintain their liabilities, meaning they had no intention to shrink their plan, and 12% said they intended to conduct significant partial settlements. Lump sums were the preferred option for removing from the plan’s census “deferred participants”—those who separated from their employer but had not yet collected pension payments (18%) —while annuity lift-outs (16%) tended to be more common for retirees collecting payments.
Plan sponsors preparing to maintain their plans for the long term may also benefit from outsourcing their investment management, Aon reported.
According to the survey, 35% of respondents said they had either already delegated responsibilities for their plan to an outsourced chief investment officer or were very likely or somewhat likely to do so. Among plan sponsors that had not delegated investing responsibilities, only 5% said they were very likely to delegate their entire investment strategy or to outsource a specific individual investment strategy.
Aon’s report suggested plan sponsors can use OCIOs to improve governance by outsourcing less significant strategic issues and by managing complexity—such as allowing OCIOs to handle glide paths and hedge paths—and to drive cost savings by leveraging OCIOs’ scale to reduce investment fees.
In addition, plan sponsors have shifted their investments away from equity and toward more customized liability-hedging assets, which match the specific liabilities of a pension plan. Asset allocations over the past 12 months are nearly identical to those projected for the next 12 months, suggesting plan sponsors are de-risking and likely will continue to do so in the year ahead.
The report added that many plan sponsors have not yet changed their investment policies despite today’s higher interest rates. Only 10% of respondents reported that rising interest rates caused them to change their glide path, and 27% reported changing the duration of their liability-hedging assets. Some of the remaining 63% adjusted their glide paths or pursued liability-settlement strategies due to changing interest rates, but they did not change their investment policies.
Aon suggested plan sponsors reconsider the level and slope of their glide paths and hedge paths, as well as consider alternative assets as diversifiers if the return-seeking assets are dominated by public equities. The report also stated that the credit spread in public long credit has declined to 0.91% as of September 30, 2025, from 3.16% on December 31, 2021, suggesting that incorporating enhanced liability-driven investing may be an attractive way for plan sponsors to get spread exposure.
“This may be an opportunity for many plan sponsors to take another look at their investment policies,” the report stated. “Markets have changed a lot over the past several years, and plan sponsors should adapt their strategies to the environment we are in.”
Aon’s report stated that awareness about fiduciary liability insurance, designed to provide coverage for breaches of fiduciary duty and administrative errors, has driven an increase in plan coverage. In 2022, only 48% of respondents reported having coverage, compared with 81% who reported having it in 2023, a number that dipped to 76% in 2025. The jump was accompanied by a large drop in the proportion of respondents who said they were not sure whether they had coverage. Plan sponsors may purchase fiduciary liability insurance to protect their investment committees, who serve as fiduciaries to their plans.
While most ongoing plans are still on a path to de-risk, there is a caveat: An increasing proportion are now considering taking on more risk long-term.
“Companies are generally healthier over the last three years and, all else being equal, will probably have a greater ability to take on risk,” explains Herron, in reference to positive returns on corporate pension funding. “They might have the same risk preference [as before], but their tolerance will be higher.”
In the most recent survey, 28% of respondents said they would maintain material investment risk in the long term, more than double (12%) those who said the same in the 2023 survey. Aon reported, based on anecdotal experience, some plan sponsors’ choice to take on a moderate level of risk aligns with their intent to maximize the value of their pension surplus in the long term.
Aon’s survey indicated respondents had little interest in strategies to monetize their plan surplus, however. Most said they would not consider covering future benefit accruals in the existing plan design (60%); reducing the DC plan benefits they provide to employees while subsequently improving the DB benefit to employees, such as IBM did in 2023 (58%); or providing other non-pension benefits, such as severance benefits or ancillary benefits such as life insurance and disability, from the plan, rather than employer assets.
“Some organizations have maximized the pension benefits provided via the qualified pension plan by shifting some nonqualified benefits back into the qualified pension plan (subject to meeting nondiscrimination testing requirements),” Herron says. “Basically, companies look at the spectrum of other benefits they provide outside the pension plan and ask the question, ‘Is there a way to structure this benefit and deliver it to our people, but have it be provided through our pension plan?’”
More than one-third of plan sponsors reported they would not consider (37%) or lacked enough knowledge to respond about (35%) using 420 transfers to 401(h) accounts, which the SECURE 2.0 Act of 2022 authorized plan sponsors to do to fund retiree health and/or life insurance benefits.
Recommendations for Those Seeking to Terminate
For Plan Sponsors Seeking to Terminate Their Plans:
- Plan termination will continue to appeal to a specific subset of plan sponsors.
- Favorable insurer pricing will continue for plan terminations.
- Customized liability-driven investment strategies will become more common.
- There is potential for increased use of derivatives as part of investment strategy.
- OCIO mandates will continue to grow, as plan sponsors increasingly find the benefits and costs of this approach attractive.
- More plan sponsors will move their current DC plans to Pooled Employer Plans.
Source: Aon Global Pension Risk Survey 2025 – U.S. Findings
Why Not Terminate?
While plan termination can be a valuable option for some plan sponsors, such as those companies that have frozen and closed their pension plans, doing so can present challenges for others.
For plan sponsors intending to terminate, data cleanup can be a critical issue.
“When you terminate a plan, you’re monetizing an obligation, sometimes based on data that could be years old,” Herron says.
More than half (56%) of terminating plan sponsor respondents to Aon’s survey said they were likely to implement data cleanup in the next two years or had already done so. While cleaning up data may ultimately put plan sponsors in a better position to get clarity in the pricing of an annuity purchase from insurance companies, it is still a significant project.
“It’s uncommon to have clean data out of the gate because a lot of the work history resides in multiple payroll systems, if you’re lucky,” Herron says. “If not, it’s in paper files in a storage facility.”
In response to the issue, however, data management companies such as the Berwyn Group have released death auditing products to assist plan sponsors with maintaining accurate participant lists.
When determining when to conduct an annuity purchase, a plan sponsor can also consult a pension buyout index to determine the estimated competitive retiree buyout cost.
Jake Pringle, leader of the annuity placement team at Milliman, says that when Milliman’s Pension Buyout Index shows the buyout cost at 100% or slightly lower, interest rates for annuity purchases are more favorable. When the index comes out closer to 103% or 105%, the opposite is true.
In January, Milliman estimated that the competitive retiree buyout cost, as a percentage of accounting liability, increased by 20 basis points to 100.3% from 100.1% during December 2025.
Pringle says that in 2025, the MPBI indicated costs remained relatively stable.
“I suspect part of that was from the insurer side,” Pringle says. “2025 was a bit slowed in terms of the number of deals and sizes of total premiums.”
Herron adds that most plans “probably need 105% to 110% funding to terminate” via a pension risk transfer.
In January, the aggregate funded ratio for U.S. pension plans in the S&P 500 was 104.6%, up from 103.4% in December 2025, according to Aon. While the funded status continues to creep up, termination may not yet be feasible for many.
“Defined benefit plans are still a valuable retention tool for many companies,” Pringle says. “It’s not surprising that there are plan sponsors that want to continue to offer that kind of benefit.”
Aon surveyed 88 U.S. corporate DB plan sponsors between May and August 2025.
Tags: Aon, Pension Risk Transfer