The funded ratios of defined benefit corporate pension plans in the U.S. rose in November, with strong market returns offsetting a drop in discount rates, according to tracking by some of the country’s largest pension consultancies.

Milliman Inc., which tracks 100 of the largest corporate pension plans through its monthly index, reported that funded ratios rose to 103.5% as of November 30, outdoing the end of October’s 103.2%.

The average market gains of 1.88% lifted the value of the plan assets Milliman tracks by $18 billion to a total of $1.338 trillion by the end of November, according to the consultancy. Those gains offset a total of $13 billion in plan liabilities driven by a 10-basis-point drop in the monthly discount rate to 5.21% for the month.

“November had very strong performance for equities, with the stock market taking off after the results of the election were clear,” says Zorast Wadia, a principal in and consulting actuary with Milliman and the author of its pension funding index. “But it wasn’t as strong of a return month for the [DB] plan sponsors … a lot of these plans are very much tracking along their glide paths as invested in fixed income, as well as equities.”

Even so, the 1.8% average market increase exceeded Milliman’s expectations and led to another strong funded status for the 100 firms in 2024. Wadia notes that the year has been one of flip-flopping between either strong market returns or a drop in liabilities from increased interest rates.

“It’s interesting that each of the months we’ve been seeing either assets as saving the day [or] in other months, when assets didn’t perform well, interest rates slightly rising and offsetting liabilities in the net favor of funded status,” Wadia says.

That back-and-forth has fund ratios on track to be net positive by the end of 2024, about 21 basis points greater than their position when the year started, Wadia says. But December, as with most months, could throw a curveball.

Fed Moves

One factor in this month’s fund status performance may be another Federal Reserve rate cut, which many economists are predicting will come on December 18 at 25 basis points. Meanwhile, President-elect Donald Trump’s discussion of tariffs will have market watchers looking to see if and when they are enacted once Trump retakes office and whether they are strong enough to increase inflation.

Wadia says whatever happens in December, DB plans are in a strong position after a few good years of high interest rates and positive markets.

“Plan sponsors might have a renewed focus on the glide path [of investments] right now,” Wadia says. “The funded statuses of these corporate plans are much better, and you don’t want to give away these hard-earned gains or improvements that have taken years to accumulate.”

Other consultancies found similar pension funding strength at November’s end. October Three Consulting’s two pension model plans both hit highs for the year at the end of November, as driven by U.S. stock market gains.

Its Plan A model, which follows a 60% equity and 40% fixed-income asset allocation, improved more than 1% compared to the end of October and is now up 10% for the year. October Three’s Plan B model, which follows a more conservative 20/80 investment strategy, gained a fraction of 1% and is now up 2% year-to-date.

Aon’s pension risk tracker, which follows S&P 500 companies with DB plans, reported an increase in funded status to 102.4% at the end of November from 97.8% in October. That improvement of $72 billion was created by liability decreases of $65 billion and asset increases of $7 billion.

“During the month, the yield on the 10-year Treasury decreased 10 basis points, while the interest rates used to discount pension liabilities fell by 6 basis points for the average pension plan,” the firm wrote. “This decrease in interest rates resulted in an increase in pension liability, which partially offset the positive effect of asset returns on funded status.”

Bond Yields Down

Wilshire, a pension advisory and outsourced CIO firm, also reported an estimated 1.4% increase in aggregate funded ratio for U.S. corporate pension plans in the S&P 500, ending November at 103.5%. The change in funded ratio resulted in a 2.2% increase in asset value, which was partially offset by a 0.8% increase in liability value, according to Wilshire’s monthly report.

“Corporate bond yields, which are used to value corporate pension liabilities, are estimated to have decreased by approximately 10 basis points in November,” Ned McGuire, a managing director at Wilshire, said in a statement. “This slight increase in liability values was more than offset by the larger increase in asset values, continuing the trend of monthly increases in funded status.”

WTW’s pension index also found a boost in funded status, reporting an increase of 1.7% from the end of October, with November ending at 120.3%—the highest value since WTW started tracking in late 2000.

Mercer, a business of Marsh McLennan, tracked an increase in funded status of about 1% month-over-month to 109% in aggregate when tracking relevant S&P 1500 companies. That represented an increase of $10 billion from the end of October and yielded a total surplus of $139 billion.

“We continue to see high overall funded status levels for many pension plans and as a result, the risk transfer market has had another strong year,” Matt McDaniel, a partner in Mercer’s wealth practice, said in a statement. “As we approach the end of the year, plan sponsors should evaluate their current risk positions in light of current market conditions to determine if they are best positioned for 2025.”

Consultancy Agilis also observed that, even as rates came down during November, the liability uptick was offset by U.S. equity markets seeing “significant gains after the presidential election.” For average or mature plans, Agilis consultants wrote that they “wouldn’t be surprising to see funded status improvements in the realm of 1%-2%.”

What Will 2025 Bring for PRTs?

Paula Cole, Nationwide’s head of pension risk transfer, said in a Q&A posted on Tuesday by the insurer that PRT transactions, which had a “phenomenal” third quarter, are set to continue next year.

“We … anticipate this industry momentum to continue in 2025, especially as plan sponsors continue to ready themselves for de-risking well into the future,” she said in the post.

But Milliman’s Wadia cautions that, rather than pursuing a PRT, this may be a time for corporate DB plans to take advantage of their strong funding status to shore up their glide path strategy, with a focus on liability-driven investing.

“The main message for 2025 is that risk transfer is always an option that’s on the table, but with improved funded status, there may be better options for yourself and your workforce going forward,” he says. “Don’t forget the value of the DB as an attraction and retention tool, as your employees are your most valuable asset.”

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