Michael Moran, senior pension strategist for Goldman Sachs Asset Management, said in an interview that it’s not just significant that so many pension plans reported growing surpluses in 2024.
“It’s that a number of them, they’ve been in that position for a couple of years now,” said Moran, “and so it’s really given corporate managers time to really think about: What do we really want to do here now?”
The common perception for the past 15 years since corporate funding ratios hit bottom following the global financial crisis is that corporations have wanted to derisk by freezing their plans to future benefit accruals and moving as many liabilities off their balance sheets as they can by transferring them to insurance companies.
Indeed, the pension risk transfer business is thriving despite numerous lawsuits in 2024 that alleged some of those transactions were not safe, Moran said.
According to a recent survey from LIMRA, U.S. pension risk transfer volume topped $50 billion in 2024, just shy of the record-setting volume in 2022. That included jumbo deals completed by Verizon Communications Inc., New York, and International Business Machines Corp., Armonk, N.Y., in which the companies transferred $6 billion and $5.9 billion, respectively, to insurance companies.
Despite the vigor with which some sponsors are executing those deals, Moran said because of funding surpluses, many companies now find themselves at a crossroads.
“We’re at this high funded level. We’ve been there for a long time, and for some of them (plan sponsors), that means continuing to go down their glidepath and derisking clearly,” said Moran. “But for others, you’re seeing a little bit of a pause. When you’re 70% funded, all you want to do is get out of the pension business. When you’re 110% funded and you have no contribution requirements and maybe you’re generating pension income, maybe they want to stick with this for a little, and so I think we’re seeing plans do that.” That could be simply keeping the plan and letting it generate that income, or using the surplus to reopen a DB plan or use those surplus assets in other ways.
In GSAM’s 2024 Pension Review published on March 18, Moran analyzed the largest 50 U.S. corporate pension plans and found an aggregate funding ratio of 104%, the third straight year that universe had a funding surplus.
Moran said on the margins he has seen some plans that are still open and underfunded beginning to rerisk their portfolios by increasing their allocations to equities and lowering their allocations to fixed income.
“I think for some plans — and we work with some of them — when they moved down their glidepaths, maybe they realized maybe they moved a little bit too far too fast, and we look at that surplus return that we need to generate to help make up that deficit, as well as funding benefits, and maybe we need to tweak that a bit at the margin,” Moran said.
Moran would not name any specific plans, which are also on the margins looking into using their surpluses to reopen portions of their DB plans.
Michael Buchenholz, head of U.S. pension strategy in the institutional solutions strategy and analytics team at J.P. Morgan Asset Management, said sponsors should think about taking advantage of how their investment returns have been outperforming the growth of liabilities over the last 10 years.
“On top of that, for the last couple of years … despite a lot of market volatility, funded status movements have been pretty muted,” said Buchenholz, “and I think that just speaks to the amount of risk that has been removed from the system, both from an asset allocation and liability perspective.”
“I think it’s important to look at the past performance because I know pension risk transfers are still continuing, but there’s an opportunity cost there. When you get rid of those liabilities, you’re also giving away those assets, and those assets have outperformed liabilities by over 2% over the last decade,” Buchenholz said.
Divergence among plans
According to JPMAM’s 2025 Corporate Pension Peer Analysis, authored by Buchenholz, discount rates rose by about 50 basis points in 2024, and investment returns averaged 2.9% among the top 100 corporate pension plans. Among the 50 plans that began the year with a surplus, their funding ratios rose an aggregate 5.4 percentage points during 2024, while those plans that began the year with a deficit saw an aggregate increase of only 0.9 percentage points.
As Buchenholz explains in the analysis, it is a “rich getting richer” scenario. Underfunded plans must earn excess returns vs. their liabilities just to keep their funding ratios from declining, while overfunded plans can underperform vs. their liabilities but still see their funding ratios go up.
What has resulted, Buchenholz said in his interview, is that two very separate, distinct types of mechanics between overfunded and underfunded plans have developed within the universe of corporate pension plans.
“I think perhaps a lot of CFOs and executives still have ingrained in them this world of underfunded mechanics where it’s very hard to improve funded status,” said Buchenholz. “We think it’s worth — once you’ve reached full funding or above — revisiting your prevailing attitudes toward keeping the plan on your balance sheet and really thinking about this almost different set of physical laws when you’re overfunded or underfunded.”
At least two notable publicly traded companies have taken advantage of funding surpluses to reopen their pension plans.
It was in November 2023 when IBM shocked the institutional investing community when it announced its decision in November to scrap its 401(k) corporate match and reopen its defined benefit plan with a cash balance component. As of Dec. 31, the company reported a funding ratio of 123.7% in its 10-K filing.
While no other company of IBM’s massive size reopened their DB plan during 2024, one other corporation in P&I’s Top 100 made a similar move.
Springfield, Mass.-based Eversource Energy announced to employees in August that as of Jan. 1, 2025, the firm would establish a new cash balance plan replacing enhanced contributions in the Eversource 401(k) Plan. The cash balance plan is described as a new, additional obligation of the existing pension plan in the company’s 10-K filing.
As of Dec. 31, Eversource reported a funding ratio of 116.2% in that 10-K filing. Officials at the company could not be immediately reached for further information.
