Pension finances started 2026 strong, as the funded status of the largest 100 corporate defined benefit plans rose to 109% in January from 108.1% at year-end 2025, according to Milliman’s Pension Funding Index.
January’s rise built on gains made in the last three quarters of 2025. Milliman’s PFI showed funding dipped to its lowest point of last year in March 2025 (102.7%) before increasing for 10 consecutive months to reach its current level.
Both model plans tracked by October Three Consulting gained ground in January. Plan A, a traditional 60/40 equity/bond allocation, improved by more than 1%. The more conservative Plan B, comprised of 80% bonds, rose a fraction of 1% last month.
All five major stock indexes that October Three followed in January posted positive performance, led by small-cap stocks and overseas markets. A diversified stock portfolio earned more than 3% during January, with the MSCI EAFE Index—covering regions described as Europe, Australasia and the Far East—up 5%.
L&G Asset Management, America estimated that the average funding ratio increased nearly one percentage point in January, to 106.6% from 105.7% in December 2025. Global equities were up 3%, and the S&P 500 rose 1.5%. Discount rates were estimated to be relatively unchanged, as the Treasury component rose slightly and credit spreads tightened marginally.
Wilshire’s pension finance monitor estimated that the aggregate corporate pension funded ratio increased by one percentage point in January, ending the month at 104.3%.
Aon, which tracked the daily funded status for S&P 500 companies with DB plans, estimated the funding ratio increased to 104.6% in January from 103.4% in December 2025. Pension assets returned 0.9% during the month, driven mainly by a 1.6% increase in U.S. equities.
MetLife Investment Management estimated that the average U.S. corporate pension funded status rose to 106.8% last month, up from 106% at year-end 2025. Assets outpaced liabilities, led by stocks and alternative investment funds.
Mercer’s analysis estimated the funding level of pension plans sponsored by companies in the S&P 1500 remained essentially level in January, at 110%, as equities increased and discount rates remained relatively unchanged.
Gallagher found discount rates stayed effectively flat in January, ending the month at 5.62%, a 0.01-percentage-point decrease from year-end 2025.
Where to Go With a Surplus?
With sustained funding well above 100% for the average DB plan, analysts noted that pension sponsors may ask, ‘Where do we go from here?’
“No longer is this really a one-sided end game where you get your plans fully funded and then, when interest rates rise, you terminate,” says Zorast Wadia, author of the Milliman PFI. “Interest rates have been high for the past several years now, and we still have pension plans around—it’s just that plan sponsors are getting smarter about the uses of [surpluses].”
Part of a sponsor’s surplus utilization strategy may include an annuity purchase for a portion of its participants, Wadia says. The PLANSPONSOR 2025 Defined Benefit Plan Administration Survey, published in September 2025, reported data for 18,122 U.S. DB plans and found that 36% of participants who received plan de-risking offers accepted an annuity. More than one-quarter (27%) accepted a lump sum, and 37% did nothing.
Among sponsors intending to maintain their plans (68%), rather than terminate, lift-outs tended to be the most common strategy, as 16% reported utilizing the option to remove retirees collecting payments from their plan’s census, according to Aon’s Global Pension Risk Survey 2025. Lump sums were the option of choice for 18% of plan sponsors seeking to remove from their plan’s census “deferred participants”—those separated from the employer but yet to collect pension payments.
As plans become better funded, sponsors may also consider de-risking on the investment side, says Tim Herron, a senior partner in Aon’s retirement consulting practice. Aon’s survey found that during the past year, 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.
On the termination front, Wadia says plan sponsors can begin those discussions when funding levels reach about 110% or 109%, as they are now. However, a plan may benefit from being closer to 110% or 115% funded before it “pulls the trigger” to terminate—a way to keep the employer from having to put additional money into the plan in order to offload their risk.
“When you do a pension risk transfer, you’re paying for it,” Wadia says. “You want to be careful, especially if you’re giving away more assets than you are releasing liabilities.”
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Tags: corporate pensions