LDI in 2025: Ten questions corporate plan sponsors are asking
We often get great questions in our conversations with US corporate defined benefit (DB) plan sponsors and their consultants. To help prepare for the coming year, we offer our thoughts on some of the most common investing, funding, and accounting questions we’re hearing today.
Funded status has improved. Should plans be derisking?
The aggregate funded ratio for US plans was 105% as of 20 December 2024, up from 97% at year-end 2023 as rates, while volatile, ended the year higher and equity returns were strong. 1 We think plans may want to consider locking in and protecting some of the year’s gains. Further, as noted in the question below, our forward-looking capital market assumptions indicate only a modest equity premium relative to long bonds. We suggest running a funded-ratio estimate, comparing it to the plan’s glidepath triggers (formal or informal), and evaluating whether and how to derisk. Potential derisking opportunities include:
- Credit (long or intermediate) — The focus here is on matching spread exposure in the liability. We think fundamentals and technicals, driven by demand for attractive all-in yields, are solid, and therefore spreads may stay tight and range-bound for longer despite relatively high valuations. Find our recent credit market views here and here .
- Treasuries and STRIPS — Plans concerned about credit valuations can use Treasuries and STRIPS to derisk and leg into credit more opportunistically over time as spreads widen. Treasuries and STRIPS may also help plans manage to hedge-ratio targets and maintain a healthy liquidity buffer for benefit payments, rebalancing, and capital call needs. We think plans should consider researching credit managers and adding them to the “bench” to be ready to deploy capital when moving from Treasuries to credit.
- Liquid infrastructure — This asset class could help plans derisk via exposure to companies that may have steadier, more bond-like cash flows, while also investing in potential growth themes, such as AI-driven demand for data centers and power generation.
- Defensive equities — This may appeal to plans that want to reduce risk but have higher return objectives or are looking to diversify their return-seeking allocations. In addition, we think valuations are attractive. (Read our article on defensive equities .)
