LDI Quarterly Update: 2Q25
Mountains in the distance

Funded status is near 20-year highs, and sponsors are less inclined than ever to terminate plans.

After a bumpy start, U.S. plans’ average funded status hits 18-year high
Illustration for a 50/50 fixed income/equity portfolio with a duration of 11 years
After a bumpy start, U.S. plans’ average funded status hits 18-year high

1 Growth asset return on the quarter was based on equity returns of 11%. Hedging assets, which match liability duration by design, unchanged due to essentially no change in discount rate. After reflecting benefit payments total net asset return is almost 4%. 

2 Liabilities unchanged during the quarter due to 1 bp decrease in rates with plan duration of 11 years and accounting for service accruals and benefit payments.

Chart

As of 06/30/25. Source: S&P, FYE 2024 company reports, Voya IM calculations and 2025 estimates. Assumes a 50% / 50% split in growth and hedging assets.

In the Spotlight: Termination hesitation

For DB pension plans, the most surprising shift in 2Q wasn’t necessarily the markets’ move from volatility to outperformance—it was a growing industry-wide shift in perspective. For the first time in years, a growing number of plan sponsors are pulling back from termination strategies. Mercer’s corporate CFO Survey data shows only 22% of organizations are considering plan termination within the next three years, down sharply from 37% in 2023. Meanwhile, half of all sponsors now say they have no intention of terminating their DB plans in the foreseeable future, up from just 28% in 2021. 

Even more striking: some sponsors are going beyond preservation and actively reopening their DB plans. IBM made headlines by reviving its previously frozen plan with a new cash balance design, and at least one other large employer has followed suit.

Exhibit 1: Sponsors are increasingly reluctant to terminate DB plans
What is your organization’s timeline, if any, for considering terminating the pension plan?
Exhibit 1: Sponsors are increasingly reluctant to terminate DB plans

As of 07/15/25. Source: Mercer. While the decline in DB plan termination intent may reflect a sample shift (sponsors who terminated between 2021 and 2025 no longer being surveyed) we do not recall many large plan terminations during the period.

These moves suggest that DB plans are increasingly no longer perceived as just legacy liabilities. They’re being reimagined as strategic tools for workforce and financial management. In fact, according to the same survey, more than half of sponsors are exploring plan changes in 2025, including hybrid structures and flexible arrangements such as cash balance plans. 

This growing interest in creative plan design reflects a broader move toward adaptable pension solutions that align with the evolving needs of a modern, diverse workforce—while maintaining acceptable levels of organizational risk. 

On the subject of risk, the survey shares that 70% of organizations have adopted dynamic de-risking strategies—up nearly 10 percentage points from 2023. Additionally, nearly 44% have increased allocations to fixed income, aiming to enhance funded status stability and better align asset-liability profiles.

Notes on the second quarter of 2025

Discount rate and liabilities essentially unchanged while equities increased 11%. We estimate the funded status of extant pension plans in the S&P 500 increased from 99% to 103% during the quarter. We assume a 50/50 mix of growth assets and hedging assets, which is the average allocation for plans in the S&P500. Equity returns for the second quarter for the common mix of assets held by many sponsors was almost 11%, giving the funded status a boost. 

The Treasury curve bear steepened during Q2, increasing its upward slope with lower short-end rates and higher long-end rates. The 5-year UST declined by 18 bps, the 10-year fell by 2 bps, while the 30-year rose by 17 bps. This movement on the short end was primarily driven by the temporary suspension of early April’s “Liberation Day” tariffs, which eased near-term growth concerns, while persistent inflation pressures and fiscal uncertainty pushed long-end yields higher. Meanwhile, the Fed held rates steady but struck a cautious tone, acknowledging the risks posed by trade policy and sticky inflation. 

Corporate bond spreads made a round trip in Q2, widening sharply during April’s tariff announcements and global trade tensions, then retracing much of that move following the temporary suspension of those tariffs and stabilizing macro data. Early in the quarter, risk-off sentiment drove spreads wider as investors reacted to the inflationary implications of new tariffs and the potential for retaliatory measures. However, the 90-day pause in tariff implementation announced April 9th, combined with resilient corporate fundamentals and improving market tone, helped spreads recover. The long corporate index OAS ended the quarter 14 bps tighter at 100 bps, reflecting modest net tightening after a volatile round trip. The net result of rate and spread movements during the quarter was a 1 bp decrease in the FTSE Pension Discount Rate for short-duration plans. For a plan with a duration of 11 years, this translated to essentially no material change in liabilities, as by quarter end the net impact of Treasury yields was largely offset by credit spreads. 

Our representative equity portfolio had a total return of 11%. For this purpose, we use a mix of S&P 500 (45%), Russell 2000 (25%), MSCI EAFE (20%) and MSCI EM (10%), reflecting the breadth of equity holdings in most plans.

Spot rate curves
Spot rate curves

Source: ICE Index Platform, FTSE pension discount curve.

  • The US Treasury spot rate curve is flatter than the FTSE pension discount curve as of 6/30/2025.
  • For the 15-year tenor, the U.S. Treasury spot rate is lower as of 6/30/2025 vs. 12/31/2024.
  • Similarly, for the 15-year tenor, the Aa-rated corporate bond spot rate is lower as of 6/30/2025 vs. 12/31/2024.
Markets
Markets

Source: FTSE, Barclays Live, ICE Index Platform, S&P, MSCI, Russell. See back page for index definitions. 

3 Based on FTSE’s “short” duration plan, approximately 10.9 years.

 

A note about risk: Examples of LDI (liability-driven investing) performance included in this material are for illustrative purposes only. Liability valuations can increase due to falling interest rates or credit spreads, among other things, as the present value of future obligations increases with falling rates and falling spreads. Liabilities can also increase due to actual demographic experience differing from expected future experience assumed by the plan’s actuary. Diversification neither assures nor guarantees better absolute performance or relative performance versus a pension plan’s liabilities. In addition, investing in alternative investment products such as derivatives can increase the risk and volatility in an investment portfolio. Because investing involves risk to principal, positive results and the achievement of an investor’s goals are not guaranteed. There are no assurances that any investment strategy will be profitable on an absolute basis or relative to the pension plan’s liabilities. Information contained herein should not be construed as comprehensive investment advice. For comprehensive investment advice, please consult a financial professional.

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Past performance is no guarantee of future results. This information is proprietary and cannot be reproduced or distributed. Certain information may be received from sources Voya Investment Management considers reliable; Voya IM does not represent that such information is accurate or complete. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial data. Actual results, performance or events may differ materially from those in such statements. Any opinions, projections, forecasts and forward-looking statements presented herein are valid only as of the date of this document and are subject to change. Nothing contained herein should be construed as (i) an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Voya IM assumes no obligation to update any forward-looking information. The opinions, views and information expressed in this presentation regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Portfolio holdings are fluid and are subject to daily change based on market conditions and other factors. 

Index definitions 

Index returns do not reflect fees, brokerage commissions, taxes or other expenses of investing. Investors cannot invest directly in an index. The FTSE Pension Liability Index reflects the discount rate that can be used to value liabilities for GAAP reporting purposes. Created in 1994, it is a trusted source for plan sponsors and actuaries to value defined benefit pension liabilities in compliance with the SEC’s and FASB’s requirements on the establishment of a discount rate. The index also provides an investment performance benchmark for asset/liability management. By monitoring the index’s returns over time, investors can gauge changes in the value of pension liabilities. The ICE BofA AAA–A U.S. Corporate Index is a subset of the ICE BofA U.S. Corporate Master Index, which tracks the performance of USD-denominated investment grade rated corporate debt publicly issued in the U.S. domestic market. This subset includes all securities with a given investment grade rating of AAA through A. The Bloomberg U.S. Long Credit Index represents the long component of the Bloomberg U.S. Credit Index, which includes publicly issued U.S. corporate and specified foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. The Bloomberg U.S. Long Government/Credit Index represents the long component of the Bloomberg U.S. Government/Credit Index, which includes Treasuries, agencies and publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. The S&P 500 Index consists of approximately 500 leading U.S. companies with approximately 75% coverage of the U.S. stock market capitalization. The Russell 2000 Index measures the performance of the small cap segment of the U.S. equity universe. The MSCI EAFE Index captures the performance of large and mid cap stocks across 21 developed market countries excluding the U.S. and Canada. The MSCI Emerging Markets Index captures the performance of large and mid cap stocks across 24 emerging market countries. Canada: Voya Investment Management Co. LLC (“Voya IM”) is relying on an exemption from the adviser registration requirement contained in section 8.26 of NI 31-103 in the provinces of Ontario, Québec and Nova Scotia. Please note that: (i) Voya IM is not registered in Ontario, Québec or Nova Scotia to act as an adviser, (ii) Voya IM’s principal place of business is located in the City of New York, N.Y., U.S.A., (iii) all or substantially all of Voya IM’s assets may be situated outside of Canada, (iv) there may be difficulty enforcing legal rights against Voya IM because of the above, and (v) Voya IM has appointed McMillan LLP as agent for service of process in Ontario (c/o Leila Rafi, Brookfield Place, 181 Bay Street, Suite 4400, Toronto, Ontario M5J 2T3), and Québec (c/o Enda Wong, 1000 Sherbrooke Street West, Suite 2700, Montreal, Québec H3A 3G4), and Stewart McKelvey as agent for service of process in Nova Scotia (c/o Marc Reardon, Queen’s Marque, 600-1741 Lower Water Street, Halifax, Nova Scotia B3J 0J2). 

 

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