How Corporate Pension Surpluses Can Climb Higher, per BlackRock

Corporate defined benefit plan asset surpluses are exceeding their sponsors’ pension liabilities at record levels, and overall funding ratios have risen to 108% in 2026 from approximately 87% in 2018, according to data from BlackRock.

The asset manager’s eighth annual “Corporate Pension Themes Report,” released Thursday, emphasized strategies plan sponsors can use to preserve funding surpluses and reduce risk in their portfolios, as well as outlining ways for well-funded plans to go “beyond full funding,” including: 

• Prioritizing curve-aware hedging in liability-driven-investment programs by considering lower credit-spread hedges and/or diversifying credit exposures; 

• Sizing private market allocations with liquidity in mind, accounting for benefit payments and rebalancing constraints; 

• Planning deliberately for surplus deployment across a variety of ideas, including improving benefits for participants, preparing for a pension risk transfer or reverting surplus assets back to the organization through a pension reversion; and  

• Engaging with a strategic partner to help align a plan’s investment strategy, help increase knowledge sharing and helping deliver cost savings. 

To preserve and grow surpluses, BlackRock noted that many corporate pension funds already in surplus territory are moving beyond traditional liability-driven-investing strategies—which include heavy allocations to fixed-income strategies with yields and cash flows closely matched to financial obligations—into more diversified credit opportunities and alternative investments.

Some plans are broadening the definition of LDI to include investment-grade-credit offerings in private credit, securitized assets and other spread sectors, such as emerging market debt, high yield and loans.

“For U.S. pension plans, these asset classes may be attractive because their credit characteristics are similar to corporate-pension liabilities,” the BlackRock report stated. “In some cases, they can also offer higher return potential to help offset the natural return shortfall of [government bond] exposure relative to liabilities, which are valued using high-quality corporate bond curves.”

Many corporate DB plans have turned to private markets in search of higher returns, in exchange for decreased liquidity, BlackRock noted. With funding ratios improving, BlackRock highlighted some characteristics of well-funded plans that it stated can benefit from continuing to invest in alts:

• Not planning a pension risk transfer, which lends itself to a longer time horizon and less need for liquidity; 

• Have the size and scale, often supported by an adviser or outsourced CIO, with the freedom to seek portfolio and manager diversification beyond listed asset classes;  

• Being open to new entrants, which implies a higher service cost as a percentage of pension obligations, requiring higher returns to improve or maintain funded ratios; and 

• Not contributing cash to their pensions, meaning the plan needs higher investment returns to do most of the work of improving and maintaining funding ratios.