Strong investment returns for both equities and bonds drove pension fund investments higher and funding levels for U.S. corporate pensions improved in June for the third consecutive month.
The funded status of the 100 largest corporate defined benefit pension plans increased to 105.1% from 104.9% and improved by $3 billion in the month, according to Milliman’s June Pension Funding Index.
In May, a decrease in liabilities, due to higher bond yields, drove up pension funding. In June, “liabilities actually increased because discount rates fell by 19 basis points,” says Zorast Wadia, the author of Milliman’s PFI. “But it was the asset returns that saved the day because of the market’s very strong return.”
The year’s second quarter saw significant market volatility, including an 18.9% drop in the S&P 500 Index over 49 days—something “comparable only to [the] COVID-19 [pandemic], the Lehman collapse, and the 1929 Crash,” said Jay Willoughby, the CIO of TIFF Investment Management, in his “2nd Quarter 2025 CIO Commentary.” Yet the S&P wound up posting its best quarter since December 2023, and the Nasdaq posted its best quarter since June 2020.
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The estimated funding level of pension plans sponsored by S&P 1500 companies remained level in June at 107%, according to Mercer. Aggregate surpluses increased to $114 billion from $102 billion in May.
Q2 Recovery
As trepidations from President Donald Trump’s “Liberation Day” April tariff announcements continued to subside, the S&P rose 4.96% in June and finished the quarter up 5.5% on the year. The index gained 10.57% in Q2, recovering from the market’s fears of possible recession driven by the proposed tariffs on global trading partners.
L&G’s Pension Solutions Monitor estimated that pension funding ratios increased to 114.3% from 113% last month.
According to L&G, plan assets with a traditional 50/50 stock-to-bond allocation increased 3.7%, while liabilities increased 2.4%, resulting in higher funded ratios by June month-end. Plan discount rates were estimated to have decreased 18 basis points during the month, driven by the Treasury component falling 15 basis points and the credit component tightening three basis points.
MetLife Investment Management estimated that the average U.S. corporate pension funding status was 105.1% in June, down slightly from 105.2% in May, as liability losses exceeded equity gains. However, pension funding rose 2.1% overall in the course of the second quarter.
Pension liabilities remained relatively flat due to rising interest rates, according to MetLife’s report. Discount rates began Q2 at 5.26%, the lowest point for the quarter. Rates hit a peak—5.78%—on May 21, before falling back down to finish the quarter at 5.37%.
Jeff Passmore, MetLife’s liability-driven investing solutions strategist, cites another factor that plays into pension funding. “Credit spreads … tightened during [Q2],” Passmore says. “[They] are very tight levels, and they continue to tighten. That decreased funded status by nine-tenths of one percent.”
Fed Decision Looms
In its monthly pension finance update, October Three Consulting found slight performance increases for the two theoretical plans it tracks. Plan A, the traditional 60/40 equities-to-bonds allocation, gained 1% in June, up 3% for the year. The conversative 20/80 Plan B gained a fraction of 1% in June, ending the month slightly in the black through the first half of 2025.
According to Gallagher’s June 2025 Pension Briefing, June was another positive month for pension plan funded status despite a dip in discount rates. Discount rates decreased by 0.18% in June, finishing at 5.58%. Although this is the second month this year that rates have dropped, rates remain higher than at any point in 2024.
The rates pulled back in June with increased expectations for a cut in the Federal Reserve’s overnight lending rate in July. The market expects monetary easing to start in September, though a rate cut when the Federal Reserve Open Market Committee meets on July 29 and 30 remains a possibility.
Gallagher also found that despite higher liabilities in June, investment performance—especially for plans with higher allocations to equities—improved pension funding. U.S. equity markets performed well as tensions began to cool in the Middle East and trade deals continued to take shape between the U.S. and some of its trading partners.
Wilshire estimated that the aggregate funded ratio for U.S. corporate pension plans increased by 1.3 percentage points in June, ending the month at 101.2%.
Although the aggregate fund ratio is estimated to have decreased 0.2% over the last 12 months, the firm’s “June 2025 Pension Briefing” found the ratio is estimated to have increased by 3.9% and 3.4% in the second quarter and year to date, respectively.
Milliman’s Wadia emphasized the need for vigilance as the year continues.
“The second quarter of 2025 was a win-win for pensions from both sides of the balance sheet, as market gains of 3.42% drove up plan assets while modest discount rate increases of 2 basis points reduced plan liabilities and resulted in the highest funded ratio since October 2022,” Wadia said in a statement. “However, if discount rates decline in the second half of the year, plan sponsors will need to be ever more focused on preserving funded status gains and employing prudent asset-liability management.”
Tags: corporate defined benefit pension funding level, Jeff Passmore, Mercer, Milliman 100 Pension Funding Index, October Three Consulting, Wilshire, Zorast Wadia
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