After decades of struggling with funding shortfalls, many corporate pension plan sponsors now face the opposite dilemma: what to do with surplus assets. As of July 31, 2026, the Milliman 100 Pension Funding Index (PFI), which analyzes the 100 largest defined benefit (DB) plans sponsored by U.S. public companies, reported an aggregate funded ratio of 112.1%. With combined plan assets of $1.296 trillion against $1.156 trillion in projected benefit obligations, that amounts to a funded status surplus of $139 billion, up $64 billion from the 106.1% funded ratio at which plans began 2026.

Two factors have driven this improvement: strong investment performance, including a 4.81% return in the second quarter of 2026 alone, and discount rates that have risen 56 basis points since January 2026, from 5.46% to 6.02%. And the surplus is not confined to a handful of mega-plans: The annual 2026 Milliman Corporate Pension Funding Study, published in April, found that more than half of the 100 largest corporate DB plans are now in surplus territory.

This is a striking change from a couple of decades ago and presents opportunities for plan sponsors. A previous article covered plan termination options for frozen plans with surplus assets. This article is focused on options for plan sponsors who wish to maintain their overfunded corporate DB plans.

How today’s overfunded pensions can prevent a repeat of the 1990s

Many corporate pension plan sponsors last enjoyed a funding surplus during the 1990s, but the subsequent dot-com crash, 2008 global financial crisis, and prolonged low-interest-rate environment combined to erode those conditions. As many plans saw their surplus turn into a shortfall, companies were forced to freeze or terminate their pension benefit altogether.

It wasn’t until 2022—when surging inflation after the COVID-19 pandemic led the U.S. Federal Reserve to raise interest rates—that plan liabilities began to fall. As investment returns simultaneously began to rise, many DB plans finally closed their funding gaps and began accumulating a surplus.

But markets and interest rates are volatile and unpredictable, and plans exposed to too much risk can quickly see their circumstances change. June 2026 offered a small-scale illustration: As market returns came in below expectations and discount rates ticked down 1 basis point, assets began to fall as liabilities rose, the precise combination under which a surplus erodes most quickly. In this case, the damage was a modest 0.1% decline in the monthly PFI funded ratio. However, at greater magnitude, this same dynamic of a substantial rate cut paired with an equity downturn could have a more severe impact on DB plan health. And the opposite circumstance could also occur as we saw most recently in July, when a sharp rise in discount rates led to a significant rise in the pension funding ratio.

Plan sponsors should take steps now to preserve their surplus and prevent a repeat of the 1990s. For one, continuing to offer a DB plan is an increasingly rare employee benefit, presenting a valuable recruitment and retention tool. For another, plans that slip below full funding levels may have to pay more in premiums to the Pension Benefit Guaranty Corporation (PBGC), comply with quarterly contribution requirements, and face potential restrictions on accelerated participant payments, such as lump sums.

First priority: Protecting a pension surplus with liability-driven investing

Before considering options for using surplus plan assets, plan sponsors must ensure the surplus remains in place. Disciplined asset-liability management strategies can help to do this.

Many of today’s overfunded plans have followed a liability-driven investing (LDI) glide path, decreasing their equity allocations while investing more in fixed income as the plan’s funded status has improved. An overfunded plan that remains heavily invested in stocks, or whose assets are poorly matched to liabilities, is carrying excessive risk.

Plan sponsors leery of changing conditions may also wish to consider a two-way glide path: continuing to de-risk as the funded status improves, while implementing provisions to re-risk should the funded status decline. Some sponsors formalize this approach by segregating the portfolio into a hedged component invested in accordance with liabilities to protect the surplus, and a growth component in which risk is taken deliberately; in this way, favorable outcomes can offset future contributions while unfavorable conditions may require higher plan contributions. Whatever the structure, the investment strategy should respond deliberately to changes in funded status and reflect the plan sponsor's risk tolerance, determined in collaboration with the plan's actuary and investment advisor.

Next up: How corporate pension plan sponsors can deploy surplus assets

Once investing strategies have been implemented to help maintain the funding surplus, sponsors of pension plans have several options for making use of those assets—options that many plans have not enjoyed in decades. These include:

• Reporting a pension income rather than a pension expense. Plans in surplus positions can help to boost company earnings. The 2026 Milliman Corporate Pension Funding Study showed that for each of the last two years, the 100 largest corporate DB plans, in aggregate, reported pension income on their balance sheets, reversing a long-running pattern of pension expense; if conditions continue, the 2027 report may show a third straight year of income. For companies used to viewing their pension plan as a corporate liability, the recognition that a well-funded plan can be a financial asset changes the strategic calculus.
• Cashless funding of benefits. Under ERISA's funding rules, a fully funded plan carries no underfunding amortization component in its minimum required contribution. For a frozen, fully funded plan, the minimum required cash contribution and PBGC variable-rate premiums are essentially zero. Furthermore, surplus assets can absorb service-provider expenses as well as PBGC fixed-rate (headcount-based) premiums. The same principle extends further: A sponsor can reopen a frozen plan or add new benefit accruals and use the surplus to satisfy the associated funding requirements without a cash event. IBM is the highest-profile example. In 2024, holding billions in surplus the plan had accumulated through past contributions and market gains, IBM reopened its frozen DB plan, redirected retirement spending away from its defined contribution (DC) plan match, and delivered a comparable benefit through the DB plan—funded by surplus rather than cash. Other sponsors have followed the same playbook. Milliman has worked with banks and nonprofit organizations that have restored DB benefits, and interest in the approach is strongest among cash-rich sectors such as banking and insurance. The strategy need not replicate IBM's wholesale replacement of the DC match; a sponsor can reduce the match and provide a complementary DB accrual.
• Reevaluating the total retirement spend. The broader opportunity is to stop evaluating DB and DC plans in isolation. With a surplus in the DB plan, sponsors can reassess the entire retirement benefits spend to identify an allocation between the two plans that delivers a similar level of benefits at a significantly lower cost. Plan design is central to this analysis, and industry practice has coalesced around hybrid designs, particularly the cash balance plan. These plans use a unit-accrual structure, with each year's credit added to previously accrued credits, without retroactive upgrades. Cash balance plans avoid the final average pay designs, in which every additional year of service revalues the entire accrued benefit, causing costs to escalate sharply, especially when economic conditions deteriorate. A properly designed cash balance plan can also function as a workforce management tool.
• Funding retiree medical benefits. Companies that also maintain post-retirement medical plans can execute an Internal Revenue Code Section 420 transfer and apply surplus pension assets toward retiree medical obligations. Eligibility requires the pension plan to be at least 110% funded. This strategic move presents another boost to recruitment and engagement: As post-retirement healthcare costs continue to rise, employees are likely to be increasingly attracted to companies that help cover this expense.

What are the pros and cons of spending surplus pension assets?

As mentioned before, some plan sponsors choose to use excess assets to terminate their plans or at least shrink them through pension risk transfers (PRT). However, there are a few costs to those options that drive sponsors to consider the alternatives discussed above.

• Risk transfer surrenders assets—and their potential future earnings. Annuity buyouts remain valuable tools, particularly for companies in declining industries whose pension plans are moving toward termination. But an annuity purchase surrenders assets and all future potential earnings on them; this approach also carries a risk premium above the plan's funded status. Notably, with so many plans now in surplus territory, PRT activity declined in the first half of 2026.
• Termination may trigger substantial taxes. For a for-profit employer, a reversion of surplus at plan termination triggers a 50% excise tax before federal, state, and local income taxes, so the net recovery may amount to only 20% to 30% of the surplus. The excise tax can potentially be reduced, but generally only by sharing the surplus with plan participants through benefit increases or a qualified replacement plan. Thus, termination may be the least-efficient outcome of a funding surplus, as it forfeits most of the surplus and eliminates the benefit in a single transaction.
• A deployed surplus is a depleted cushion. Every dollar of surplus used to fund accruals or offset contributions is unavailable if markets turn. Reopening a plan can be a short- or long-term commitment, and the supporting analysis must address how long the surplus will last under a given plan design, how supplemental annual contributions may change the trajectory, and how the plan could perform under adverse scenarios.

It is worth noting that the strategies discussed in this article do carry a notable risk that plan termination or PRT can often mitigate.

Looking ahead: Growing options for companies with overfunded pension plans

Legislative interest is building in expanding plan sponsors' ability to use surplus pension assets without terminating the plan. Options under discussion include permitting plans to apply a DB surplus toward other benefit programs—for example, funding DC or profit-sharing contributions as a cashless event. If these proposals become law, plan sponsors would have even more incentive to retain their DB plans and further diminish the appeal of plan termination as a strategy for accessing surplus funds.

The case for maintaining a traditional pension plan ultimately rests on its role in retirement security. When employees have access to a DB floor—a monthly benefit they cannot outlive—they can more confidently invest their DC plan assets for growth. This combination best positions them for stable retirement income, and companies that prudently manage their pension plans and continue to offer this rare, though highly valuable, benefit may be able to attract and retain the best talent.