Radical market swings leave some in the pension crowd on edge

Plans for S&P 500 companies lost nearly $74 billion in value in the days after President Trump’s “Liberation Day" tariffs were announced and funded status dipped below 100% in March for the first time since last September, staying there until early this month, according to professional services firm Aon. Stocks have since recovered with the surprise agreement between the U.S. and China to unwind certain tariffs, but uncertainties remain about when and where markets will settle.

“They’re all trying to figure out what the impact to them is," said Matt McDaniel, a partner in consulting firm Mercer’s wealth practice, of the dozens of corporate pension managers he’s heard from since stocks started gyrating last month. For those pensions that have a less volatile investment strategy, plan managers have been surprised to learn their pensions are mostly unscathed, he said. “Whereas others with different investment strategies are having a more painful experience."

The “others" are pension plans that have kept assets in volatile investments versus fixed-income investments. For this group, it has been a taxing several weeks assessing the duration and effect of the volatility on their pensions, with some considering changing or pausing strategies to reduce risk, pension advisers say.

While big companies have mostly switched new hires to 401(k)-style retirement options in recent years, corporate pension plans for U.S. companies still cover around 18 million people and $2.1 trillion in assets, according to Aon.

Some of those corporate pensions continue to have “high exposure" to riskier assets, which pension advisers define as around 40% or more of assets invested in equities. Sixteen companies from consulting firm Milliman’s index of the 100 largest pension plans sponsored by U.S. public companies fall within that range. Among them are Johnson & Johnson, Merck, Abbott Laboratories and Berkshire Hathaway, all of which are fully funded, meaning they have enough assets to cover liabilities, according to Milliman. Philip Morris International and gas and electric utility company Public Service Enterprise Group have more than 50% in equities and are less than 100% funded on their global pension liabilities, according to Milliman’s review of companies’ latest annual filings.

Philip Morris’s international pensions, which accounted for over 90% of the plan’s total assets as of the end of 2024, meet local statutory funding requirements, a company spokesman said.

Pensions with significant exposure to riskier investments are particularly concerned if they aren’t fully funded, said William Strange, a principal at consulting firm Milliman. “Companies with high equities exposure that are fully funded or over funded have a buffer, and so are less impacted and potentially less concerned about recent market volatility," he said.

Companies with pension plans have spent the last several years cutting the associated pension risks, by transferring them off their balance sheets, for one. Some have also moved away from riskier investments in favor of more stable fixed-income investments. Roughly 25% of pension assets were in equities last year, according to Milliman. That is down from around 38% a decade ago.

Electric utility Entergy slashed its equities exposure for 2024 by around 15% compared with a year earlier. The company has worked for over a decade to reduce its pension-related risks, said Finance Chief Kimberly Fontan. That includes closing it to new participants in 2014, lifting out around $1.2 billion in assets last year and shifting investments as the pension’s funded status rose. Around 36% of Entergy’s pension assets were in equities last year compared with just over 50% a year earlier.

Fontan may further decrease equity investments as the plan’s funded status, which last year was at around 96%, increases. But, she said she isn’t planning to make investment changes because of the market swings. “When you’re in market volatility, you don’t want to make drastic moves because it’s going to swing one way and then swing the other," she said. “We’re at a good place with where we are in the funded status, but obviously if we see a significant shift there, we can make tweaks in the equity allocation."

Plan sponsors are watching recent market turbulence and asking whether their risk exposure makes sense, pension advisers said. Some will keep higher exposure, particularly those that are funded below 100%. They want to make up the funding gap without having to throw in cash, advisers said. So, they look to the markets to do the work by leaning in on equity investments, for example, to outperform other assets such as bonds. Some are considering transferring their liabilities off the balance sheet, an increasingly appealing option in recent years with plans more than fully funded. Meanwhile, others are putting derisking plans on hold, waiting for calmer markets.

“More often than not, it leads to changing something," Mercer’s McDaniel said of the conversations he’s having with pension plan sponsors. But it tends to be smaller shifts done over time, he said. “It’s usually not a wholesale change where you’re going to say, ‘Let’s open the floodgates and throw risk back on’ or ‘Let’s exit the equity market entirely and only invest in fixed-income for the rest of our lives.’ It’s usually more of an iterative process."

Write to Jennifer Williams at jennifer.williams@wsj.com