Corporate Pensions

Staying funded despite volatility

U.S. corporate defined benefit (DB) plans started 2022 with some of the strongest funding ratios since 2008. However, as inflation persists and markets react, plans are under significant pressure. Our Client Insight Unit analyzed data from the 200 U.S. corporate pensions to find ways plans can improve and maintain funding levels.

2022 insights


Funded ratios are up and timely de-risking is critical

While average funded ratios reached around 98% as of September 2022, they have fallen from their 2021 highs. Many plans are looking towards LDI solutions to lock in funded status and hedge liability risks. Within LDI buckets, we see advantages in hedging across the curve, and a more expansive approach to fixed income.


No one-size-fits-all approach for corporate pensions

Dispersions persisted, with the financial sector at 110% funded and plans in communications, energy and real estate sectors below 90%. We found that the wider the gap between service cost and contributions, the more plans tended to rely on asset return. To support funded ratios plans need to account for these factors in their portfolios.


Reaching hurdles with lower expected returns

As of 2021, median expected return on assets (EROA) fell 25 bps to 6.25%. Nearly 36% of plans may fall short of meeting hurdle rates of returns to meet funding targets. With higher yields and interest costs, we expect hurdle rates to be 150bps - 200bps higher. Plans with a rate higher than the EROA should consider adjusting their asset allocation.

This is an excerpt from the full report on our Corporate Pension Peer Risk Study.


Corporate pensions closed out 2021 with some of the highest funded ratios since GFC. The average funded ratio was up 11% through the end of last year, on top of a 14% funding ratio recovery from the COVID trough in 2020 based on the BlackRock U.S. Pension Funding Update. As a result, many plans reached or surpassed full funding.

However, some corporate pension’s funded ratios have begun to drop from their record highs as markets grapple with the end of a period of steady growth. Meanwhile, yields in fixed income have increased over 150 basis points (bps) since the beginning of the year. This movement has produced decreases in corporate pension liability values and decreases in fixed income asset valuations, as well as higher interest costs going forward. BlackRock’s Client Insight Unit analyzed data from the 200 largest DB plans in the United States to understand what plans can do to maintain their hard-earned gains while navigating the crosscurrents of increased volatility and rising yields.

Allocation trends to help funding levels

1. Diversify sources of return across public equity, credit and real assets
2. Reassess liquidity needs to get more out of private markets
3. Be more expansive in fixed income allocations
4. Custom overlay approaches help mitigate funded ratio risk

Learn more about how investors are actioning these allocation trends and opportunities available to weather volatility ahead.
Corporate pensions report
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Expected returns across varying asset classes

Expected return (CMA) is calculated by mapping asset allocation reported in the annual financial statement to BlackRock’s capital market assumptions as of June 2022. Please read the chart in the PDF titled "Learn more: BlackRock capital market assumptions" for additional details, including the indexes used to represent each asset class. There is no guarantee that the capital market assumptions will be achieved, and actual risk and returns could be significantly higher or lower than shown. See CMAs in disclosure for more info.

Opportunities for higher risk-adjusted return

Income-generating private market investments like private credit, infrastructure equity and debt, and real estate mezzanine are expected to provide a higher risk-adjusted return than global equity. These investments have positive correlations to pension liabilities and can effectively drive growth while reducing overall funded status volatility.

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Fixed income allocation trends, 2007-2021

Data Source S&P Capital IQ as of December 31, 2021. Universe of data consists of top 200 DB plans from U.S. listed companies. Assets include single- and multi-employer plans. For illustrative purposes only. “Others” includes asset allocations not disclosed in detail on the 10k filings.

Increased portfolio allocations to fixed income assets

As the allocation to fixed-income assets increases, plans are considering a diversified approach to de-risking. Many are starting to evaluate diversifying traditional long corporate and long government exposures to multi-sector and extended-sector fixed income to keep up with their liabilities and mitigate headwinds from downgrades and defaults.

Learn more about how investors are actioning these allocation trends and opportunities available to weather volatility ahead.
Corporate pensions report


Calvin Yu, CFA, CAIA
Managing Director, Head of the Client Insight Unit
Angela Zhang, CFA, CAIA
Vice President, member of the Client Insight Unit
Samantha DiMaggio, CFA
Vice President, Global Product Group