With billions of dollars locked in overfunded U.S. corporate pensions, the companies sponsoring these plans are actively exploring ways to unlock that capital (albeit at different rates of speed). Investment consulting giants are seeing strategies that range from funding lump-sum payouts to pursuing full plan terminations.
As the average pension plan has crept into overfunded territory, Matt Maloney, a senior partner at Aon Wealth, sees sponsors taking three approaches: holding the surplus as a buffer, funding partial lift-outs or a full termination, or spending it after shifting other benefits (like DC plan contributions) into the defined benefit plan.
“The greater the surplus, the further down that list sponsors are likely to be,” Maloney said.
The scale of the surplus is significant: WTW estimates that of the 100 largest U.S. corporate DB plans by obligations, 45 percent are overfunded. Of those, half are funded at more than 110 percent, representing an excess of $63 billion.
And these plans are becoming even more funded. The aggregate funded ratio for U.S. plans tracked by Aon has risen 140 basis points this year to 101.8 percent, an improvement of $21 billion driven by strong equities performance.
“It’s a lot of capital. There’s $63 billion of assets that might be trapped,” said Julie Gebauer, WTW’s president of health, wealth, and career.
Gebauer outlined the most popular options sponsors are considering. One path is to reopen the plan in a new form, a topic of increased discussion since IBM replaced its 401(k) match with a pension credit in 2024.
But while WTW has had conversations with roughly 100 sponsors about such a move, movement is slow. “We’re not yet at dozens; we’re at a dozen that’s done so,” Gebauer said. Plus, any new plans would likely feature fixed contributions resembling a 401(k), not a traditional lifetime benefit based on salary and tenure.
A more immediate option is offering lump-sum payouts. Gebauer has seen an uptick in sponsors using surplus assets to fund these payouts, which can serve as severance or enhanced retirement packages amid corporate restructuring.
There’s also interest in letting employees choose to direct surplus assets to a DC plan, but Gebauer notes “limited movement” due to regulatory uncertainty. “Very few organizations are ready to implement such a provision without assurance from the IRS,” she added.
For a definitive solution, outright plan termination is gaining traction. While the annual termination rate typically sits between 1 percent and 2 percent, Gebauer says it is approaching the top of that range and may exceed it. “And once you terminate, you get access to all the surplus that remains.”
