Art by Simone Virgini
Corporate pension funding surpluses are higher than they have been in more than a decade. Large surpluses are leading corporate pension plan sponsors to take a risk-on approach to their portfolios and evaluate options for the future of their plans.
“We’ve hit the record high funded ratio since the [liability-driven investing] era,” says Jeff Passmore, lead LDI strategist at MetLife Investment Management. “We hit 107.2% funded intra-quarter—that was February 17.”
According to Milliman, in 2024, about 34 U.S. companies had frozen pension plans with surplus assets.The firm reported that corporate funded statuses are the highest they have been since 2008. Plan sponsors are increasingly asking what they can do with their surplus assets.
“As plans have gotten into this surplus position, they are faced with a couple of key decisions,” says Justin Demino, Insight Investment’s head of solution design in North America. “Ultimately, where do they want to take the plan from here? Are they going to spend down this surplus in the form of a pension risk transfer? Or are they looking to extract value out of those assets [and] continue to manage the plan on balance sheet?”
Corporate plan sponsors have increasingly turned to the pension risk transfer market to de-risk their plans, offloading the responsibility to pay for retiree benefits to an insurer. PRT volumes have never been higher. According to Aon, 2024 was another record year, with $51.8 billion in PRT volume across 785 transactions.
Termination of a plan is still the ultimate end of most plans in surplus.
“The majority of plans that are frozen and just a little bit overfunded are still targeting termination,” says Jonathan Camp, a managing principal at the Meketa Investment Group. “But we have seen an uptick in companies that are opening back up their plans. … Some of these frozen plans that have excess assets—let’s say they are 5% or 10% overfunded—that’s when [the sponsors] start to have to think to [themselves]: Are we going to terminate the plan and then use those assets for some other purpose?”
The last few years have also seen the emergence of very large outsourcing mandates, soon totaling tens of billions of dollars, one investment consultant noted. This includes UPS’s $43.4 billion mandate with Goldman Sachs Asset Management and Shell PLC’s $30 billion mandate to BlackRock.
How Frozen, Surplus-Asset Plans Are Investing
“If you’re 100% funded or over 100% funded, you’re going to have a heavier allocation to bonds—the higher quality, the better,” says Meketa’s Camp. “So typically Treasurys, AAA bonds, AA bonds … you’re generally focused on investment-grade, high-quality corporate bonds.”
These plans typically focus on investing in bonds with longer duration that are similar to the payout structure of their pension liabilities. But as pension funding surpluses have increased significantly, and as more plans have frozen and closed over the past decade, plan sponsors are increasingly diversifying their fixed-income portfolios.
“We’re seeing plan sponsors that were allocated exclusively to long-duration bonds now taking some of that allocation and moving it into shorter mandates,” says MetLife’s Passmore. “We are also seeing plan sponsors begin to diversify their bond allocations to segments of the fixed-income market that have different risk characteristics,” including increasing interest in private credit and other segments of the fixed-income market.
Overall, these plans are increasing their allocations to growth assets, which J.P. Morgan Asset Management’s head of U.S. pension strategy, Michael Buchenholz, attributes to some plans’ liquidity tolerance and return needs.
“Overfunded plans have experienced greater funded status improvements compared with their underfunded counterparts,” Buchenholz wrote in the firm’s 2025 corporate pension peer analysis. “Our analysis indicates that they have benefited from the structural ‘leverage’ of larger asset pools, funding tailwinds that arose from paying benefits while in surplus and a willingness to maintain higher allocations to return-seeking assets.”
For example, IBM reduced its target allocation to fixed income and hedge assets to 70% in 2024 from 83% in 2023, largely increasing its target allocation to real estate and other alternative assets, according to JPMAM
Verizon, which has gone through several PRTs, decreased its fixed-income target allocation to a range from 41% to 51% in 2024, down from 62% to 72% in 2023.
“For IBM, the 13-[percentage-point] shift from fixed income to public equity and alternatives appears to have been a response to its plan reopening in 2023 and corresponding changes in its liquidity tolerance and return needs—both of which are increasing,” Buchenholz wrote.
Managing cash flow risk is also an increasingly bigger part of conversations with corporate pensions, says Ciaran Carr, Insight Investment’s head of North American client solutions, as these plans want to design their investment strategies to best avoid selling their assets at the wrong time.
“We are seeing an emergence [of] interest in understanding the benefits of widening the tool kit even further, to include strategies like cash-flow driven investments,” Carr says. “That allows pension plans to manage cash flow risk much more effectively, i.e., allowing them to pay benefits payments without necessarily being a forced seller on their assets, at a time when it is [dis]advantageous to do so.”
According to J.P. Morgan Asset Management’s 2025 peer pension analysis, the average funded status of an underfunded corporate plan among the largest 100 pension plans was 92.3%. For plans in surplus, the average was 122%.
But funds in surplus continue to grow that surplus, while underfunded plans stagnate. J.P. Morgan found that in 2024, only 58% of underfunded plans saw an increase in funded status, while 89% of plans in surplus did.
“The excess capital from a pension surplus creates a leveraging effect, amplifying the impact of asset returns on the net position,” Buchenholz wrote. He also cited the impact of benefit payments and risk transfers enhancing the funding ratios of plans in surplus, while reducing funding for those in a deficit.
Will More Plans Like IBM Reopen?
When IBM reopened its plan in 2023, people wondered if such reopenings would become a trend, but so far, the only plans that have appeared to do so are cash balance plans, like IBM’s.
“The plans that I see that are frozen and using their assets to open back up and offer new benefits, from what I’ve seen, they tend to be cash balance plans,” Camp says, noting that other types of plans are not unfreezing their pensions.
“There hasn’t been a wave of reopenings, [but] there have been others who have talked about potentially doing that,” Passmore says. “I think there are economic benefits—very strong, compelling economic benefits.”
Tags: Ciaran Carr, Insight Investment, J.P. Morgan Asset Management, Jeff Passmore, Justin Demino, Meketa, MetLife Investment Management
