Asset Gains Drive Up September Corporate Pension Funding

The funded ratio for the largest 100 corporate defined benefit plans improved to 106.5% in September, the highest level since October 2007 (108.1%) and up from 106.3% in August, according to Milliman’s pension funding index.

September’s market returns of 2.5% added $26 billion to the market value of plan assets and swelled the funding status surplus to $80 billion last month. Meanwhile, discount rates dropped 17 basis points to 5.36%, which raised plan liabilities by $22 billion. During the third quarter, the plans earned 4.14% in returns, while discount rates slipped 16 bps overall, resulting in a net funded status improvement of $16 billion.

September was the sixth consecutive month of improvement for corporate pension funding, according to Zorast Wadia, author of the Milliman PFI. “Assets and liabilities both rose, but the asset values rose more so,” Wadia says.

While September saw a steeper drop in discount rates than August, funded status nonetheless picked up $4 billion, Wadia adds.

September Outlooks

L&G – Asset Management, America estimated that the average funding ratio increased by one percentage point, to 104.6% at month-end September from 103.6% at month-end August. Equity markets experienced positive performance, with both global equities and the S&P 500 up 3.7% over the month. Plan discount rates were estimated to have decreased 12 bps over the month, driven by the Treasury component falling 8 bps and the credit component tightening 4 bps.

“The FT Wilshire 5000 Index ended Q3 just 0.2% below its record high, marking the fifth consecutive month of rising asset values and gains for pension plan assets,” said Ned McGuire, Wilshire’s managing director, in a statement.

The aggregate funding ratio is estimated to have increased to 102.6% in September, up 0.4 percentage points from August and 2 percentage points over the quarter, according to Wilshire. September’s change in the funded ratio was driven by a 2.3 percentage point increase in asset value, partially offset by a 1.8 percentage point increase in liability value.

Aon, which tracked the daily funded status for S&P 500 companies with DB pension plans, estimated the funded ratio increased to 102.3% in September from 100.4% in August. Pension assets increased by 2.9%, largely driven by a 3.5% increase in U.S. equities and a 3.1% increase in long-duration corporate bonds.

The estimated funding level of pension plans sponsored by S&P 1500 companies remained level at 109% in September due to an increase in equities, offset by a decrease in discount rates, Mercer reported in its U.S. Pension Buyout Index. Typical discount rates for pension plans, as measured by the Mercer Yield Curve, decreased to 5.35% from 5.55%.

Gallagher, a risk management, insurance and consulting firm, found discount rates decreased by 0.21 percentage points to 5.45% in September, the second-lowest rates have been in 2025. Positive market returns outweighed any increases due to declining discount rates.

“The government shutdown at month-end has not triggered any excess market volatility to this point,” the report stated. “It remains to be seen how that shakes out through October. The probability of a rate cute at the October [Federal Reserve] meeting has hit over 96%, with the probability of two 0.25% cuts by year-end approaching 90%.”

October Three Consulting stated that in September, higher stock market returns again drove improvement in the two theoretical pension plans it tracks. All five stock indexes tracked by the firm gained ground, and a diversified stock portfolio gained almost 4%, up almost 18% for the year.

O3’s Plan A, a traditional 60/40 equity/bond allocation, gained a fraction of 1% in September, up almost 6% for the year. The more conservative Plan B, comprised of 80% bonds, also gained a fraction of 1% last month, ending September up more than 1% through the first three quarters of 2025, according to the firm.

A Turn of Events

“During Q1 [2025], pension finances were underwater,” says Brian Donohoue, a partner in October Three. “But every month since the end of March, we see improvement … and pretty steady movement since the end of May—about 1% [increase] per month.”

Donohue says that while bonds performed decently, stocks have done a lot better. Judging from how 2025 started, it should be surprising that stocks are up as high as they are now, he says.

October Three reported that, looking ahead, underfunded plans will likely see higher required contributions for the next several years. The firm expects pension sponsors to use effective discount rates in the 5.1% to 5.5% range to measure pension liabilities.

Wadia says that plan sponsors’ abilities to manage market volatility will continue to be crucial to keep their plans healthy.

“It’s important for plan sponsors to be balanced on both sides of the balance sheet—to make sure that however the liabilities move, the assets move in kind in order to keep the funded status stable,” says Wadia. “Otherwise, [they’re] going to give away the gains that have been achieved so far.”