A pension plan's funded status is the difference between the value of its assets and the present value of the benefits it owes. Expressed as a ratio, assets divided by liabilities, it shows whether a plan is overfunded (above 100%) or underfunded (below 100%). Driven by higher discount rates and strong returns, large US corporate plans moved into surplus, with the Milliman 100 funded ratio reaching roughly 109% in early 2026.
Funded status is the headline health check of a defined benefit pension plan. In one number it answers the question every member, sponsor and regulator cares about: does the plan have enough money to pay what it has promised? Like any health check, though, the number is only useful if you know what it measures — and what it leaves out.
The basic definition
Funded status is simply the difference between two figures:
- Plan assets — the fair value of the investment pool set aside to pay benefits.
- Plan liabilities — the present value of all the benefits the plan has promised to current and future retirees.
If assets exceed liabilities, the plan has a surplus and is overfunded. If liabilities exceed assets, the plan has a deficit and is underfunded. The same relationship expressed as a percentage — assets divided by liabilities — is the funded ratio. A plan with $109 of assets for every $100 of liabilities is 109% funded.
Both halves of the equation move constantly. Assets rise and fall with markets. Liabilities move with the discount rate, with longevity assumptions, and as members accrue new benefits and retirees are paid. Funded status is therefore a snapshot, not a fixed property of the plan.
Why the liability side is the tricky half
Measuring assets is relatively straightforward — they are marked to market. Measuring liabilities is where the judgement lives, because a liability decades in the future has to be converted to a value today using a discount rate. The higher that rate, the smaller the present value of the liability, and the better the funded status looks.
This is why funded status cannot be read in isolation from the rate environment. The corporate pension "deficits" of the 2010s were largely a product of ultra-low bond yields inflating liabilities; the "surpluses" of the mid-2020s are largely a product of higher yields deflating them. The benefits owed barely changed — the discount rate did.
It also explains why one plan can honestly report several funded statuses at once. The accounting measure (ASC 715) uses high-quality corporate bond yields. The funding measure (ERISA and IRS rules) uses prescribed, often smoothed, rate segments. The settlement measure — what an insurer would charge to assume the obligation — is typically the most demanding. A plan can be comfortably in accounting surplus yet still short of the sum needed to fully off-load its liabilities.
The 2025-26 surplus, in numbers
After a decade in which underfunding was the norm, large US corporate plans have moved decisively into surplus. According to Milliman's index of the 100 largest US corporate defined benefit plans, the funded ratio improved from about 103% to roughly 109% over the twelve months to early 2026, with the funded-status surplus improving by tens of billions of dollars. Plan assets posted a cumulative return above 11% during 2025, and the discount rate held in the 5.3-5.5% range.
Milliman's projections suggest the surplus could grow further — toward a funded ratio around 111% by the end of 2026 if the expected ~6.5% asset return is met and the discount rate holds. These are forecasts, not guarantees, and a sharp fall in yields would reverse much of the improvement by re-inflating liabilities. But the structural picture is clear: the corporate DB universe entered 2026 in its strongest funded position in two decades.
Public plans are a different story. Because many discount their liabilities using an assumed long-term return on assets rather than bond yields, their reported funded ratios are generally lower and less sensitive to the rate moves that lifted corporate plans. CalPERS, the largest US public fund, manages roughly $600 billion and reports a funded ratio well below 100% on its own basis — a reminder that "pensions are overfunded now" is a corporate-sector statement, not a universal one.
Why funded status drives behaviour
For sponsors, funded status is not just a disclosure — it dictates strategy. A plan in deficit must plan for contributions and may take more investment risk to close the gap. A plan in surplus can do the opposite: de-risk.
De-risking usually means shifting assets toward bonds that match the liabilities (liability-driven investing), so the funded ratio stops swinging with markets, or transferring the obligation to an insurer through a buy-in or buyout — a pension risk transfer. The wave of corporate buyouts in the mid-2020s is a direct consequence of so many plans reaching surplus: once you are fully funded, the rational move is often to lock the win and remove the risk from the balance sheet.
This is why funded status matters to the wider asset-owner ecosystem. Insurers, asset managers running LDI mandates, and advisers structuring risk transfers all build their pension businesses around where funded ratios sit.
In plain English
Funded status tells you whether a pension has enough set aside to cover its promises. Above 100% it has a cushion; below 100% it has a hole to fill. But the figure leans heavily on the discount rate used to value those promises, so the same plan can look healthier or sicker depending on the rulebook. Read it as a starting point — then ask which measure it is, and where interest rates were on the day it was struck.
Sources and further reading
- Milliman, Pension Funding Index (2025-2026) and 2026 Corporate Pension Funding Study — funded ratio ~109%, 2025 asset return ~11.3%.
- Milliman, "Why does one defined benefit pension plan have so many different measures of funded status?"
- Thinking Ahead Institute, World's Largest Pension Funds 2025.
- CalPERS investment and actuarial disclosures (2025-2026).