By Lauren Bailey
For the first time in nearly two decades, the average funded status of the 100 largest public U.S. corporate defined benefit pension plans increased to 101.1% by the fiscal year end of 2024, up from 98.5% the year prior, according to a report by Milliman.
The report, which studied employers across multiple business sectors, found the total value of the pension plan assets among the indexed companies was $1.26T at the end of 2024. It noted both liabilities and assets decreased; however, liability declines exceeded plan asset declines based on the 3.6% annual investment return. As a result, the average funded status improved from a deficit of $19.9B to a surplus of $13.8B.
“Overall what happened during 2024 on the income statement side is the top 100 plans recorded pension income in 2024, not pension expense,” said Zorast Wadia, a principal and consulting actuary with the consultancy and a co-author of the report. “So having a pension plan boosted your earnings instead of recording it as a typical expense requirement. That was a reversal from 2023 and so 2024 was essentially a special year in that plan funded status improved [and] plan sponsors were able to record pension income.”
Most pension funds in 2024 had investment returns below their assumed long-term expected returns (6.5%), posting a net $44.8B investment loss for 2024. Only 19 of the Milliman 100 companies exceeded their expected returns in 2024.
Assets didn’t perform as well within the Milliman 100, primarily because a large portion (roughly 50% to 60%) were invested in fixed income type instruments, Wadia added.
Fixed income allocations in pension portfolios decreased slightly to an average of 52.4% at the end of 2024, down from 53.8% at the end of 2023. By contrast, allocations to equities increased slightly to 24.6% from 23.0% in 2023. Plans with higher allocations to fixed income generally underperformed the other plans, while those with at least 50% allocated to fixed income earned an average return of 1.9% compared with 2.9%.
Plans with significant allocations to fixed income as part of a liability-driven investment strategy typically have allocations to long-duration, high-quality bonds. During 2024 these bonds saw asset returns of about -2%, closely tracking the decrease in pension liabilities.
Ned McGuire, a managing director at Wilshire, noted that, while the organization did not see a trend toward more return-seeking assets, much of the market movement seen over the past couple years was due to equities returns being greater than fixed income.
“If you have equities or return-seeking assets within your plan, they grew faster than fixed income assets, and so they’re going to make up a larger portion of the total asset allocation, unless you make a active decision to move out of the equity allocation into fixed income as your funded ratio changes.”
Plans with greater allocations to equities saw higher investment returns in 2024. The 11 plans with equity allocations of at least 50% earned an average return of 8.3%, while those with equity allocations below 15% earned an average return of 1.5%. The report also noted that, overall, allocations to equities increased during 2024, resulting in an average allocation of 24.6%. None of the companies in the index had increases to equity allocations of more than 10.0% in FY2024, while two companies decreased their equity allocations by more than 10.0% last year.
Still, by the fiscal year end of 2024, total asset levels were $1.257T — $33B higher than $1.224T value gained at the end of 2007, prior to the collapse of the global financial markets.
Notably, liabilities also came out lower than expected due, in part, to an increase in discount rates last year, with the average discount rate for plans in the study increasing by 42 basis points from, which led to a decrease in the projected benefit obligations ($1.24T in 2024 vs $1.34T in 2023).
As well, last year saw higher plan sponsor contributions ($17.6B) than in 2023 ($16.3B), — though both years lagged employer contributions for 2017 ($60.7B) and 2018 ($57.5B), respectively.
Milliman’s report estimated that roughly a third of the companies in the index have frozen U.S. pension plans with excess assets, noting the ability to access this surplus could lead to more companies shift spending strategies from defined contribution to DB vehicles.
McGuire said some plan sponsors are considering reopening their DB plans, but as enticing as this may seem, he noted it is easier said than done. While there have been some notable plan sponsors that have taken this route and re-opened their plan, such as IBM, accessing surplus capital is not as easy as flipping a switch, he added. “It involves some in-depth discussions to ensure all the rules are followed and that participants are kept whole at the end of the day. So that’s really a case-by-case discussion.”
Looking forward, despite its rocky start, Wadia said the upwards trend in funding status is continuing into 2025, as the Milliman 100 index is reporting a funded status of close to 102.9% as of the end of April.
These results aren’t unique to just the Milliman 100. Wilshire also published a similar study that closely reviewed plan sponsors among the S&P 500 cohort, which found the average funded ratio at the end of April was roughly 104%.
