October was the seventh consecutive month of positive news for corporate pension funding, driven by strong investment returns.
The funded status of the largest 100 corporate defined benefit plans increased to 107.1% in October from 106.5% in September, according to the Milliman 100 Pension Funding Index. The market value of plan assets increased to $1.328 trillion as of October 31, up $10 billion from the September total.
“You expect stocks to outperform bonds and for pension finances over time to improve, but you don’t expect it to be this sort of elevator that just goes up, up [and] up,” says Brian Donohue, a partner in October Three Consulting. “[The trajectory] should be punctuated by downs and ups … so it’s sort of remarkable what we see this year.”
All five major stock indexes tracked by October Three posted positive performance last month and have delivered double-digit returns so far in 2025. A diversified stock portfolio gained more than 2% in October and is now up 21% for the year.
October Three’s Plan A, a traditional 60/40 equity/bond allocation, gained 1% in October, up almost 7% for the year. The more conservative Plan B, comprised of 80% bonds, gained a fraction of 1% last month, ending October up almost 2% through the first 10 months of 2025, according to the firm.
L&G Asset Management, America estimated that the average funding ratio increased nearly one percentage point, to 105.5% in October from 104.6% in September. Global equities and the S&P 500 Index were both up 2.3%. Meanwhile, rates eased: Plan discount rates slipped 1 basis point, as Treasurys fell 4 bps and credit spreads widened 3 bps. Plan assets grew 1.5%, while liabilities climbed by just 0.6%, lifting funded ratios higher, the firm reported.
The aggregate funding ratio is estimated to have increased by 1.4 points in October, ending the month at 104%, according to Wilshire. The change was driven by a one-percentage-point increase in asset value and a 0.4-percentage-point increase in liability value.
Aon, which tracked the daily funded status for S&P 500 companies with DB plans, estimated the funding ratio increased to 102.9% in October from 102.3% in September. According to Aon, pension assets increased by 1.3%, driven largely by a 2.1% increase in U.S. equities and a 0.5% increase in long-duration corporate bonds.
Mercer’s analysis estimated the funding level of pension plans sponsored by companies in the S&P 1500 remained level in October at 109% due to an increase in equities offset by a decrease in discount rates. Typical discount rates for pension plans, as measured by the Mercer Yield Curve, decreased slightly, to 5.33% from 5.35% over the month.
Gallagher found discount rates stayed relatively flat in October, ending the month at 5.44%, a 0.01-percentage-point decrease from month-end September.
“The high-quality corporate bond yield spreads continue to remain tight as the Federal Reserve’s monetary policy continues to be favorable for expected future economic growth and continued investor demand,” Gallagher’s report stated. “Looking ahead to [the fourth quarter of 2025], all eyes will be on inflation data and the labor market as the Fed decides whether another rate cut makes sense in 2025.”
A Sign of Easing
October Three stated in its latest funding update that while pension finances are in their seventh consecutive year of improvement—as well as enjoying seven consecutive months of improved funding—higher price-to-earnings ratios and discount rates that remain greater than 5% suggest the hot streak may be easing.
According to Donohue, bonds are “back on the table as an investment” and look more attractive than they may have a few years ago. Going forward, it would be “bad news for pension finances” if bonds earned more than stocks, he says.
“We know this seven-year run we’ve had is going to come to an end,” says Donohue. “These numbers are sort of like warning lights flashing.”
Donohue adds that there are some parallels between current optimism about artificial intelligence—which has driven up stock prices—and optimism about stocks that created the “dot com” bubble, which burst in 2000. Earlier this century, people enthusiastic about the adoption of the internet “got ahead of themselves,” he says, by spending too much on stocks that delivered subpar returns. Now, some people are similarly investing in AI with an expectation of high returns.
Dan Dreher, a strategist at L&G, agrees that while the AI market could boom, it may not do so just yet.
If the boom is delayed, there could be a “supply shock going into 2026, and the demand might not necessarily be there to digest it at current prices,” Dreher says. “It won’t mean AI is broken or never going to grow—it might just mean, ‘We’re a little tight here; we need to let air out of the tires.’”
Tags: corporate pensions