Corporate Pension Quarterly 2Q 2025: Dollar Dilemma
Quarterly Snapshot
We estimate the aggregate funded status for the US corporate pension system ended the second quarter of 2025 at 104.4%. Resilient earnings results in 1Q helped US equities rebound from lows earlier this year and drove risk asset returns higher for the quarter.
Source: MSCI, Bloomberg, and Goldman Sachs Asset Management. As of June 30, 2025. The June 2025 (E) figure is estimated and unaudited as of June 30, 2025, and subject to potentially significant revisions over time. Actual returns may vary significantly. The economic and market forecasts presented herein have been generated by Goldman Sachs Asset Management and Goldman Sachs Global Investment Research for informational purposes as of the date of this presentation. They are based on proprietary models and there can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. Past performance does not predict future returns and does not guarantee future results, which may vary. GAAP funded status estimates are based on US plans (where specified) of defined pension plans within the S&P 500 (i.e., 229 companies with pension data per GS Asset Management analysis).
- Volatility, driven by tariff announcements and delays, US fiscal deficit concerns, and the testing of US Dollar’s perceived safe haven status, took center stage in 2Q 2025. US equities experienced rounds of market whiplash before ending the quarter at near all-time highs. Investors also continued to seek return opportunities in both developed and emerging equity markets outside of the US.
- Bond yields in 2Q initially rose on the back of tariff-related worries and their potential impact on inflation but fell in June after concerns around potential labor market weakness, ultimately ending the quarter largely unchanged from the end of 1Q.
- Our Fixed Income US economist continues to forecast two US Fed rate cuts this year in September and December but notes a risk of later cuts.
In the News
Recent Matters of Note from the American Benefits Council
- In May, the American Benefits Council (ABC) proposed two changes to Congress regarding how corporate pension sponsors may use otherwise unusable surplus assets in retirement plans:
- Proposal 1: allow surplus assets in a DB pension fund to be transferred to provide contributions to participants in the employer’s defined contribution retirement plan without terminating the DB plan (compared to current condition that only a terminating DB plan may do so).
- Proposal 2: enable surplus assets in a plan sponsor’s retiree health account to be transferred and used to pay for other benefits, such as active employee health benefits.
- According to ABC, these changes could unlock more than $100 billion in idle surplus assets and would provide benefits for both plan sponsors and employees as well as a potential for tax revenue boost for the federal government. The proposals also include protections to ensure employee benefits are not reduced as a result of the surplus transfers.
- The proposals did not advance to be enacted as part of the latest budget reconciliation bill that passed in July, but ABC has stated that it will continue to focus on these changes.
- We continue to monitor updates on the topic, as the proposals, if enacted, may lead some corporate pension plan sponsors to rethink investment and asset allocation strategies.
Select Pension Plan Actions Announced
- In its latest Form 10-K filing, Conagra Brands disclosed that it purchased a group annuity contract from an undisclosed insurance company to transfer $761 million in US pension plan liabilities. The transaction covers benefit payments to about 22,000 retirees. As of the filing date, Conagra’s $1.95 billion US plans were around 115% funded.
- In April, DallasNews Corp. disclosed that it purchased a group annuity contract from First Allmerica Financial Life Insurance Co. to transfer all of its $142 million in pension plan assets. The transaction would cover benefit obligations of over 1,200 participants and beneficiaries of the plans. As part of the transaction, the company contributed a total of $10 million to the plans.
Sizeable Annuitization Transactions in 1Q 2025
The Life Insurance Marketing and Research Association (“LIMRA”) reported that there were 127 single premium pension buy-out transactions totaling $7.0 billion in 1Q of 2025, down 13% from prior year’s results.6 These contracts cover almost 100,000 pension participants. According to LIMRA, since January 2020, the US pension risk transfer market has completed deals covering over 3.1 million participants.
Source: News releases, company reports, and Goldman Sachs Asset Management. As of June 30, 2025. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Please see additional disclosures at the end of this presentation.
Strategist Spotlight
Significant market volatility would typically strengthen the dollar, but this year has been different. What is behind the dollar's weakness?
The DXY index, which measures the US dollar against a basket of six major currencies, declined by 10.7% in the first half of the year, marking its worst first half since 1973.7 This weakness reflects improving prospects outside the US, such as optimism over German fiscal expansion, Euro area defence spending, and Chinese AI model development, which have helped other currencies gain ground. Additionally, concerns over US policymaking, equity market concentration, and valuations have challenged the “TINA” (There Is No Alternative) narrative that previously favoured high-return, high-carry US assets. These factors caused the dollar to decouple from its traditional safe-haven role, weakening even during periods of risk aversion.
What could continue to weigh on the dollar’s outlook from here?
Cyclically, slowing US growth relative to the rest of the world and resumed Fed easing may reinforce dollar depreciation, as these are key factors behind prior periods of sustained dollar weakness.
From a structural standpoint, a continued shift by investors towards greater regional diversification—echoing the “Embracing a Broader Equity Landscape” theme advocated by our Fundamental Equity team—could exert sustained downward pressure on the dollar.
Another structural downward force is a rise in currency hedge ratios as global investors seek to better manage return volatility. In 2025, dollar weakness has amplified losses for non-US investors with low or no currency hedges on their US asset allocations. In fact, so far this year, the Dollar and US equities have ended the week lower together more than twice as often as over the prior 10 years.8 Currency hedging adjustments, though gradual, could continue to contribute to incremental selling pressure on the dollar over time.
What does this mean for the dollar’s perceived safe-haven status and role as a global reserve currency?
The dollar's downtrend is unlikely to be linear, with opportunities for tactical long positions in actively managed portfolios. Strong US inflation or growth data could lead to periods of appreciation. We think the dollar can also still rally during risk-off episodes, especially if driven by developments outside the US. Additionally, we do not expect currency hedging, asset allocation shifts, or near-term economic concerns to change the dollar's status as the global reserve currency, largely because no alternative matches its scale and liquidity.
What do these dollar dynamics mean for US corporate pension plans?
Many US corporate pension plans have high exposure to the dollar through allocations to US dollar-denominated assets, including high-quality fixed income and US equities. Current currency dynamics can amplify returns on international assets for US investors, reinforcing the case for regional diversification.
That said, we do not view regional diversification as a rejection of US assets. US equities still offer superior profitability, and US firms lead in innovation and productivity. Additionally, and importantly, US corporate pension plan liabilities are valued based on the yields on high-quality, US corporate bonds, thereby making them the best hedging instrument for this investor segment when considered within a funded status volatility context. Additionally, despite fiscal concerns, US Treasuries continue to offer diversification benefits, especially during periods of rising downside growth risks. However, unlike the post-financial crisis period, diversification makes more sense today due to elevated valuations in US assets, a concentrated US equity market, and broadening opportunities in other regions, including those linked to Europe’s defense build-out and Germany’s fiscal push.
Strategy in Focus: Multi-Sector Fixed Income
Amid global trade tensions, policy uncertainties, and unsettled markets, some corporate pension sponsors with fixed income exposure are recalibrating their portfolio and take an active, multi-sector approach to capture income opportunities along with risk-adjusted return potentials in their traditional portfolios.
Source: Morningstar and Goldman Sachs Asset Management. The analysis considers ten Fed cutting cycles starting in 1984. Four of these cycles were associated with recessions (1990, 2001, 2007, 2020), three with growth scares (1987, 1998, 2019), and three with policy normalization (1984, 1989, 1995). Abbreviations: 3-month US T-Bill: 3-Month portion of the Bellwethers U.S. Treasury Index; US Agg: Bloomberg US Aggregate Index; IG Corporate: Bloomberg US Corporate Investment Grade Index; HY Corporate: Bloomberg US High Yield Corporate Index; IG Muni: Bloomberg Municipal Bond Index; Global Agg: Bloomberg Global Aggregate Index (returns are based on cycles after 1989 due to data availability). Past performance does not predict future returns and does not guarantee future results, which may vary.
Source: Bloomberg, as of March 31, 2025. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk. “IG” refers to Investment Grade Corporate Bonds, “CLO” refers to Collateralized Loan Obligations, and “CMBS” refers to Commercial Mortgage-Backed Securities. Past performance does not predict future returns and does not guarantee future results, which may vary.
The Case for Structured Products
- Many fixed income benchmarks have not evolved to reflect the importance of structured products that potentially offer attractive performance and the benefits of diversification in fixed income portfolios.
- CLOs and CMBS have delivered resilient risk-adjusted returns and attractive income amid recent market turbulence.
Stay Nimble in Fast-Moving Markets
- Given higher rates in most bond markets compared with cash and core bonds, a dynamic approach that integrates sector rotation, focuses on income, and considers the relative value among spread sectors may be a sensible way to capture income and offer better diversification to risk assets.
1Average asset-weighted return of S&P 500 companies’ US defined benefit plans. For 2024, uses average asset returns based on disclosed data. When not disclosed, estimates asset returns based on actual asset returns (in dollars) and average asset value.
2Mix of MSCI EAFE and MSCI ACWI ex-US.
3Mix of Corporates (Bloomberg US Aggregate Bond Index), High Yield (iShares US High Yield Index), Treasuries, and Long Credit (iShares Long US Credit Index).
4Discount rate proxy measured by 50% Moody’s AA Corporate Bond and 50% US Long Duration Corporate Bond. For 2023, uses average discount rate change for December year-end filers.
5Estimated Change in Plan Liabilities based on increase in estimated discount rate and duration of 11. For 2024, uses average actuarial gains / losses as a percentage of starting Projected Benefit Obligation.
6Source: LIMRA Group Annuity Risk Transfer Survey. As of 1Q 2025, the latest available as of publication.
7Source: Macrobond, Goldman Sachs Asset Management, Deutsche Bank Research Early Morning Reid June and 2Q 2025 Performance Review. As of June 30, 2025. The DXY index, measures the value of the US dollar against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
8Source: Global Markets Daily: Why FX Hedging Shifts Should Continue (9 July 2025)
