Corporate pensions enter ‘surplus era’ as funding tops 108%, but divide widens

US corporate pension plans are entering a new phase of financial strength, with average funding levels reaching their highest point since the global financial crisis, according to BlackRock’s latest Corporate Pension Peer Study.

But beneath the headline improvement, the report points to widening differences in outcomes and a fundamental shift in how sponsors are managing risk.

The study, which analyzes more than 500 defined benefit plans and closely examines the 200 largest, found the average funded ratio rose to 108% at the end of the 2025 fiscal year. More than half of plans are now fully funded — the largest share in years — reflecting the cumulative effects of higher interest rates, ongoing de-risking, and tighter risk controls.

That progress, however, is far from uniform as more than one fifth of plans remain below 90% funded, highlighting persistent gaps tied to sponsor characteristics, industry dynamics, and investment approaches. The report emphasizes that while the system overall appears healthier, plan-level outcomes continue to diverge significantly.

This divergence is shaping what BlackRock describes as a “pivoting moment” for corporate pensions. For many sponsors, the focus is shifting away from rebuilding funded status toward protecting existing surpluses. That transition is influencing both portfolio construction and risk appetite.

Preserving gains

For plans that have reached or exceeded full funding, preserving gains has become a priority. This is showing up in more conservative return assumptions and greater emphasis on liability-driven investing. In fact, the study notes that plans just above the 100% funded threshold tend to have the lowest expected returns, reflecting a deliberate move to reduce risk rather than pursue additional upside.

Across the broader universe, expected returns on assets have edged higher, rising to 6.7% in 2025 from post-pandemic lows. The increase is largely attributed to improved fixed income return expectations following the rise in interest rates. Still, the report finds that funding levels alone do not explain return assumptions. Instead, factors such as liability profiles, governance frameworks, glidepath strategies, and the balance between active and passive management play a more decisive role.

Asset allocation trends further underscore the shift toward risk management. Fixed income now represents 54% of the average portfolio, marking a continued move toward liability-aware investing. But the nature of that exposure is evolving. Sponsors are not simply increasing bond allocations — they are also expanding into a broader range of credit assets, including securitized products and private high-grade investments, while using more advanced LDI strategies to fine-tune portfolio alignment with liabilities.

Plan size remains a key differentiator in how these strategies are implemented. Larger pension plans, which tend to be better funded, are maintaining more diversified portfolios that extend beyond traditional public markets. These sponsors often allocate to private equity, infrastructure, and other drawdown-based investments, giving them additional sources of return and flexibility.

As a result, even with stronger funded positions, larger plans may have less exposure to public fixed income than their smaller counterparts. Their broader diversification allows them to balance growth and risk in more complex ways.

Smaller plans, meanwhile, continue to rely more heavily on public equities as their primary growth engine. However, the report suggests that many are beginning to adapt by incorporating higher-yielding credit strategies and exploring new ways to diversify returns. This gradual shift points to a convergence in investment thinking, even if execution capabilities differ.

No one-size fits all

Despite these evolving strategies, the report underscores that there is no one-size-fits-all approach. Outcomes are driven primarily by plan-specific decisions rather than broad market conditions. Differences in contribution history, liability structure, governance, and investment design all play a role in shaping results.

For underfunded plans, the focus remains on generating returns efficiently to close funding gaps. For those in surplus, the challenge is preserving that position while aligning pension risk with broader corporate objectives.

The result is a more complex landscape in which headline improvements mask significant variation beneath the surface. While the overall health of US corporate pensions has strengthened, the path forward will depend less on macro trends and more on how individual sponsors navigate this transition from recovery to resilience.