Corporate Pensions Continue Funding Surplus Rise in January

The average funding ratio of U.S. corporate pension funds continues to exceed 100% after growing further in January, pushing to a recent high.

According to Milliman, which tracks the funded status of the largest 100 U.S. plans through the Milliman 100 Pension Funding Index, the funding ratios of these plans rose to 105.8% at the end of January, up from 104.8% the month before. The gains are largely due to a strong equity market, as well as little change in discount rates.

This is the highest funded status level in 27 months, according to Milliman. Markets returned 1.19% in January, increasing plan assets by $9 billion to $1.308 trillion at the end of the month. Monthly discount rates, used to value plan liabilities, increased by one basis point, to 5.60%, reducing plan liabilities from $1.240 trillion in December 2024 to $1.237 trillion in January.

“The funded status surplus of the Milliman 100 plans reached a 27-month high at the end of January—the perfect start to the year as plan liabilities declined while plan assets grew after market gains exceeded expectations,” said Zorast Wadia, actuary at Milliman, in the firm’s monthly report.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

Many companies with pension funds in surplus are choosing to outsource the investment management of their portfolios or to offload their plan liabilities to insurers.

“With Fed[eral Reserve] rate cuts still a possibility this year, prudent asset-liability management remains a key directive for plan sponsors to preserve the funded status gains achieved thus far,” Wadia said.

According to Agilis, plan sponsors saw funded status gains of from 1% to 3% in January. With 2025 expected to be a volatile year, Michael Clark, managing director and chief commercial officer at Agilis, wrote in a note that corporate plans should lock in their gains and offload their pension liabilities.

“We anticipate that 2025 will continue to be volatile, so plan sponsors would do well to lock in gains through their investment strategies and pursuing pension risk transfer strategies,” Clark said.

According to Mercer, which tracks the pension funded status of S&P 1500 companies, these funds saw their solvency increased to 110% in January from 109% in December 2024. Plan surpluses increased to $158 billion in January from $135 billion last December.

Wilshire, which tracks the funded status of corporate plans in the S&P 500, found that the funding surplus increased by 1.8% in January, to 105.4%, the highest funded status level tracked by Wilshire in more than a year, up from 103.6% at the end of December. Over the trailing 12 months, funded status increased by 8.8%.

LGIM America, which tracks the health of a hypothetical corporate defined benefit plan through its Pensions Solutions Monitor, finds that a plan with a 50/50 stock/bond asset allocation saw its funding ratio increase to 112.6% in January from 111.1% last December.

Aon, which tracks the funded status of pension plans of companies in the S&P 500, reported that the funded status of these plans increased to 103.4% in January from 102.5% in December. Plan assets increased by $12 billion, while liabilities decreased by $1 billion.

According to WTW, which tracks the funded status of U.S. retirement plans through its WTW Pension Index, funded status rose to its highest value since mid-2000. In January, the index rose to 124.6, up from 122.2 in December, as strong investment returns offset an increase in liabilities. The index, based on the performance of a hypothetical plan with a 60/40 portfolio, saw investment returns of 2.2% in January. Liabilities increased by 0.2%, due to changes in discount rates, resulting in a 2.0% increase in pension funded status.

October Three Consulting tracks pension finances for two hypothetical funds: Plan A, with a 60/40 allocation, and Plan B, with a 20/80 allocation. The firm found that the funding of Plan A improved more than 1%, while Plan B improved less than 1% in January.

Interest Rates

Interest rates have long been an uncertainty for plan sponsors. Since the Federal Reserve started raising rates in 2022, higher interest rates have contributed to an increase in corporate funded status. Pension surpluses should not be affected by further rate cuts in the near future: Bond markets now predict no cut to the benchmark federal funds rate until December 2025. The strong Consumer Price Index report this week, showing a 3% increase in inflation driven by higher food and energy prices, reinforces the sentiment that the Fed is unlikely to resume rate cuts soon.

“The Federal Reserve paused its campaign of interest rate cuts resulting in minimal month-over-month changes in corporate bond yields—used to value corporate pension liabilities,” said Ned McGuire, a Wilshire managing director, in a statement. “The positive returns across asset classes helped maintain the month-end aggregate funded ratio estimate above 100%.”

Still, there are many uncertainties ahead for plan sponsors, such as the economic impact of federal policies, including tariffs, as well as the direction of interest rates.

“Markets will be closely watching for the economic impact of the recently announced tariffs and other potential executive actions,” said Matt McDaniel, a partner in Mercer’s wealth practice, in a statement. “The Fed continues to take a ‘wait and see’ approach with interest rates, leaving plan sponsors a lot of uncertainty to process to start the new year.”

Pension Income Contributed $1.5T to US Economic Output in 2022

Kodak Considers Terminating Overfunded Pension Plan

Tags: Agilis, Aon, Funded Status, Legal & General Retirement America (LGIMA), Matt McDaniel, Mercer, Michael Clark, Milliman, Ned McGuire, October Three Consulting, Pensions, Wilshire, WTW, Zorast Wadia

The New York State Common Retirement Fund committed more than $2 billion to new investments in December 2024, more than half of which was allocated to real estate investments, according to the pension fund’s monthly transaction report.

Within its real estate portfolio, the $275 billion pension giant earmarked $400 million to the IPI Partners III fund managed by IPI Partners LLC, a new relationship for the NYSCRF. The fund will focus on data center investments worldwide. The NYSCRF committed another $100 million within its real estate portfolio to the IPI Partners III Co-Investment fund, which will invest alongside IPI Partners III.

The pension fund also acquired Simone Little Italy, a 395-unit, 36-story luxury high-rise apartment building in San Diego for $283 million. Another $247.5 million was spent on the acquisition of the Royce, a 520-unit, multi-family property in Irvine, California.

The NYSCRF also made commitments worth $500 million within its opportunistic absolute return strategies portfolio. The fund is investing $300 million in the B Capital Global Growth IV fund from B Capital Group Management. The fund invests in early-stage to late-stage growth tech companies. Another $200 million will go to the B Capital Co-Invest Fund, a sidecar co-investment vehicle.

For more stories like this, sign up for the CIO Alert newsletter. 

Within its credit portfolio, the pension fund is allocating $100 million to the Pearl Diver Nautilus Series 2024 fund managed by Pearl Diver Capital. The fund will mainly invest in debt and equity tranches of collateralized loan obligations managed by third-party investment firms. It may also invest in CLO warehouses.

The fund committed $50 million to the Emerging America Credit Opportunities Fund from Capital Partners. The fund provides debt and flexible credit solutions to sponsored and non-sponsored lower-middle-market companies and will comply with certain requirements of the Small Business Administration for qualified small business investment company funds. Another $25 million was set aside for the Emerging America Credit Opportunities SMA I Fund, a separately managed co-investment sidecar that invests alongside the Emerging America Credit Opportunities Fund.

Within its private equity portfolio, the pension fund invested $200 million in the Summit Partners Co-Invest fund from Summit Partners. The fund will invest alongside Summit Partners Growth Equity Fund XII, which will primarily be utilized in the U.S.

The pension fund also committed approximately $15.2 million to the Warburg Pincus Jovian FS fund managed by Warburg Pincus. The fund will complete follow-on investments in portfolio companies transferred out of the Warburg Pincus Financial Sector portfolio.

Within the NYSCRF’s emerging managers program, which was established to invest in newer, smaller and diverse investment firms, the fund allocated $15 million to the AUA Private Equity Partners Fund III, which will make “control-oriented” investments in family-owned businesses in the consumer sector, with a focus on food manufacturing and distribution.