Corporate Pension Quarterly 1Q 2025: The Edge on European Equity
Quarterly Snapshot
Source: Goldman Sachs Asset Management. As of March 31, 2025. Funded status reflects monthly estimates. Exceptions apply to year-end data, which are actual.
We estimate the aggregate funded status for the US corporate pension system ended the first quarter of 2025 at 103.0%. Asset returns were positive, offsetting an increase in the estimated value of liabilities driven by lower discount rates and organic liability growth.
US equity underperformed its global counterparts in 1Q, as policy uncertainty and tariff concerns in the US led investors to seek safe-haven investments in public equity markets outside of the US as well as in fixed income. International equity markets outperformed on the back of more supportive policy, strong yields, and attractive relative valuations.
Interest rates moderately declined in the quarter, which decreased our discount rate proxy2 by 5 bps and subsequently increased the value of the aggregate pension liability by an estimate of 0.6%.
As US trade policy continues to evolve, we have adopted a more defensive stance across public markets investment exposures. We remain nimble and seek to capitalize on market corrections.3
Source: MSCI, Bloomberg, and Goldman Sachs Asset Management. As of March 31, 2025. Percentage changes represent total returns. 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 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). 2. Discount 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. 3. For additional information, please click here for our recent market brief on US tariff updates. 4. Average 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. 5. Mix of MSCI EAFE and MSCI ACWI ex-US. 6. Mix of Corporates (Bloomberg US Aggregate Bond Index), High Yield (iShares US High Yield Index), Treasuries, and Long Credit (iShares Long US Credit Index). 7. Estimated Change in Plan Liabilities based on increase in estimated discount rate and duration of 11. For 2023, uses average actuarial gains / losses as a percentage of starting Projected Benefit Obligation.
In The News
Recent Matters of Note
Takeaways from our 2024 Pension Review “First Take”: Crossroads
In our recently released “First Take” pension review report, we present findings from our annual analysis of DB pension plans of S&P 500 companies based on their form 10-K filings with the Securities and Exchange Commission. In line with previous years, we focus our initial “First Take” analysis on the 50 companies in the index with the largest US DB plans by plan asset values. Our key findings based on that data set include:
- The aggregate funded status of the US corporate DB pension system ended 2024 at its highest level since 2007. The year-over-year increase of around 3 percentage points was primarily driven by a combination of positive asset returns and lower liability values from higher discount rates.
- Expected return on asset (EROA) assumptions for many DB plans increased for a second consecutive year in 2024, as return expectations for certain asset classes and bond yields remain elevated. Guidance provided by plan sponsors on the 2025 EROA assumption to be used for financial reporting purposes would indicate that many either kept their EROA assumption unchanged or increased it slightly.
- Given strong funded levels, many plan sponsors are reconsidering their priorities for their DB plans – some enacting long-planned de-risking actions, while other explore potential uses of surplus. Regardless, we observe plan sponsors engaging in a wide variety of actions.
Select Pension Plan Actions Announced in FY 2024 Filings
- In its Form 10-K filing, International Flavors & Fragrances Inc. disclosed that it settled the termination of its pension plan during November 2024. The company paid a lump sum settlement of around $73 million to eligible plan participants who elected such payments and purchased an annuity contract of approximately $366 million for the remaining participants. The company had a remaining pension surplus balance of $36 million post-settlement.
- Dayforce Inc. announced a termination of its frozen US DB plan as of September 30, 2024, and is in the process of transferring associated liabilities to an insurance company. According to Dayforce, the risk transfer transaction is expected to complete in 2025 and may involve a lump sum offering to eligible, electing participants.
- Republic Services, Inc. disclosed in its Form 10-K that in 2024 it terminated its qualified DB pension, which covered certain employees in the US, through a lump sum offering and an annuity contract with an undisclosed insurance provider.
Record Annuitization Transactions in 2024
The Life Insurance Marketing and Research Association (“LIMRA”) reported that there were 254 single premium pension buy-out transactions totaling $11.6 billion in 4Q. On an annual level, there were a total of 784 transactions in 2024, a new record high for the US pension risk transfer market. While the total dollar amount of pension buy-outs fell below the previous record set in 2022, the record number of transactions in 2024 provide an indication that the market remains robust and that sponsors remain active.
Source: news releases, company reports, and Goldman Sachs Asset Management. As of March 31, 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. Company names and logos, excluding those of Goldman Sachs and any of its affiliates, are trademarks or registered trademarks of their respective holders. Use by Goldman Sachs does not imply or suggest a sponsorship, endorsement or affiliation. 1. Source: LIMRA Group Annuity Risk Transfer Survey. As of 4Q 2024, latest available as of publication.
Portfolio Manager Perspectives
Chief Investment Officers from Goldman Sachs Asset Management’s public investing teams convene on a quarterly basis to explore key investment forces and uncover new potential opportunities. Key topics discussed in the most recent meeting included implications of market volatility, particularly related to recent tariff actions, and the potential impact of US energy sector deregulation. Our quarterly update was recently published in our CIO Digest. We seek to provide a recap of the quarterly update below through a corporate pension lens.
Considering heightened levels of geopolitical tension and uncertainty around tariffs, what are the team’s current macro views and outlook?
We entered 2025 anticipating higher growth rates in the US and further declines in inflation. However, the implementation of faster, higher, and broader tariffs along with government reorganization efforts have introduced additional risk that inflation may remain elevated as well as a higher probability of a near-term US recession.
Heading into Q2, we seek to monitor economic metrics in the US – consumer spending, business activities, and employment – to assess the sustained impact of tariffs on the global economy. In Europe, we foresee higher growth potential driven by easing monetary policy by the European Central Bank and the latest fiscal transformation in Germany. Meanwhile in Asia, we expect higher inflation in Japan on the back of the fastest rate of wage growth in the last three decades. For China, while domestic policy easing measures remain in scope, recent updates around tariffs keep the level of uncertainty high going forward.
What are the key takeaways and implications for the US energy sector given potential deregulation under the Trump Administration, and where do opportunities lie within the industry?
One sector of focus for the Trump Administration is energy, as President Trump has signed executive orders and taken actions to boost domestic energy supply. While the US has saturated the oil market as a net oil exporter, we believe investment opportunities may be available in the liquified natural gas (LNG) part of the industry.
In addition to deregulatory efforts, rising energy demand driven by artificial intelligence (AI) developments and reshoring is creating structural demand for LNG as a power source. Permits granted over the next four years are expected to drive the next wave of LNG export growth from 2029, potentially positioning the US as the world's leading natural gas supplier. We believe increasing LNG production and building the necessary infrastructure to do so creates investment opportunities in companies across the LNG supply chain including storage facilities and pipelines, making it a compelling focus for investors looking to capitalize on the evolving energy landscape.
How should plan sponsors position their portfolios amidst a volatile market condition and a potential market downturn?
While short-term market volatility may be fleeting, losses could ripple across asset classes over time in the event of a structural market downturn. In light of heightened level of uncertainty, we have turned defensive on public equity but continue to find opportunities beyond US large cap in small caps as well as in regions outside of the US. For fixed income, interest rate yields remain elevated but are experiencing volatile movements as investors’ speculation of an economic downturn triggered selloffs in longer-dated Treasuries.
As we outlined in our “First Take” annual pension review, many DB plans are fully funded or over-funded. As such, for some, the strategy with respect to their plan may shift from return generation to asset-liability matching to preserve their strong funded positions. The sharp drawdown in equity markets year-to-date in 2025 is a reminder of the importance of a glide path or journey plan that can adjust asset allocation and investment strategy as funded levels change. This oftentimes involves adding fixed income at the expense of public equity, but it also involves carefully constructing the smaller, though still potentially volatile, return-seeking portfolio. As we examine in the next section, some plans may wish to consider re-thinking the mix of their public equity portfolio, in particular potentially re-considering their allocation to European equity given several potential tailwinds for the region.
Ultimately, we acknowledge that every plan is unique, and its specific circumstances must be taken into consideration when navigating volatile market conditions.
Source: Goldman Sachs Asset Management. As of April 2025. For discussion purposes only. For discussion purposes only. There is no guarantee that objectives will be met. Diversification does not protect an investor from market risk and does not ensure a profit. De-risking strategies should not be construed as providing any assurance or guarantee that as a result of applying the strategy an investor will reduce and/or eliminate risk, as there are many factors that may impact end results such as interest rates, credit risk and other market risks.
Strategy In Focus: European Equity
A globally diversified portfolio may potentially mitigate risks associated with domestic market fluctuations in the US and provide access to growth opportunities in diverse economies and industries. In developed markets outside the US, we find competitive edges of companies that may provide strong return and income potentials across time horizons.
European Equities are Trading at a Discount and May Offer Higher Dividend Yield Opportunities
Source: Datastream, Factset, Goldman Sachs Global Investment Research. Data as of March 13, 2025.
Source: Bloomberg and Goldman Sachs Asset Management. As of March 2025. For illustrative purposes only. Past performance does not guarantee future results, which may vary. “PEG” refers to “P/E to Growth” and is a valuation metric.
Broadening Out of US Equity
- Decelerating US economic growth as well as uncertainty about immigration and tariff policies have added to volatility and a rotation away from large-cap technology
- Global investors have turned their attention to regions where growth prospects seem brighter and valuations more attractive
Opportunity Set for Europe
- Accommodative monetary policy in the European Union and unprecedented fiscal stimulus introduced by the German government provide pro-growth opportunities in the region
- International developed equities may offer geographically diversified revenue streams, a higher dividend yield and are more value-orientated than the S&P 500
An Active and Micro Approach
- International equities offer a greater breadth through exposure to high quality and globally competitive companies across various sectors
- Companies with high-quality earnings, healthy dividends, and insulation from geopolitical risk may be particularly attractive
- An active approach may be key to finding companies able to withstand macro volatility and benefit from the new economic regime
Source: Goldman Sachs Asset Management. As of April 2025. There is no guarantee that objectives will be met. Past performance does not predict future returns and does not guarantee future results, which may vary.
