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NewsMaterial3 min readDisconfirmAI Editorial

US Corporate Pension ROA Assumptions Stabilize at 5.9%: Interest Rate Cycles and Asset Allocation Logic

Wellington released its annual update on US pension Return on Assets (ROA) assumptions for year-end 2025: corporate plan average assumptions have stabilized at 5.9%, ending a 15-year structural downward trend. The article analyzes how changes in Financial Accounting Standards Board (FASB) accounting rules and the low-interest-rate environment led to a 200-basis-point decline in ROA assumptions, and points out that the current rise in the interest rate center may prompt plans with high fixed-income allocations to adjust their assumptions upward. Understanding the evolution of ROA assumptions is key to predicting the flow of US pension funds and the supply-demand dynamics of long-term bonds.

2026-11-12

The Return on Assets (ROA) assumption for US Defined Benefit (DB) pension plans is not merely a figure in actuarial reports; it is a critical variable driving hundreds of billions of dollars in asset allocation, influencing the supply and demand of fixed-income markets, and shaping the bond yield curve. Recently, Wellington Investment Insights released its annual update on ROA assumptions for US corporate and public DB plans, revealing signs of stabilization or even structural reversal in this key metric at year-end 2025 after a 15-year period of continuous downward adjustment.

Data shows that as of year-end 2025, the average ROA assumption reported by Russell 3000 index constituent companies for their DB plans was 5.9%, unchanged from 2024; the average ROA assumption for public pension plans also remained unchanged at 6.9%. This stabilization is no coincidence but a correction to the dual shocks of the macroeconomic interest rate environment and balance sheet rules over the past two decades. In 2006, the Financial Accounting Standards Board (FASB) introduced mark-to-market balance sheet accounting for pensions, and Congress passed the Pension Protection Act, forcing many plan sponsors to reevaluate their investment strategies. From 2006 to 2022, US corporate plan ROA assumptions underwent a 15-year structural decline, with a cumulative drop of 200 basis points.

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The core mechanisms behind this long-term decline are twofold: passive tilting of asset allocation toward fixed income and the sustained decline in risk-free rates. In 2006, only about 10% of companies selected an ROA assumption below 7.0%; by 2022, this proportion surged to 90%. Over these 16 years, corporate pensions increased their allocation to fixed-income assets by more than 20 percentage points to hedge liability risks. However, as interest rates continued to fall between 2008 and 2021, the expected yields of fixed-income assets were significantly compressed, leading to a decline in the expected returns of the overall portfolio.

However, this trend reversed after 2022. The broad-based stock and bond market sell-off in 2022 forced companies to reset their forward-looking return expectations for both equities and bonds. More importantly, the rise in the global interest rate center directly boosted the coupon yields of fixed-income assets, providing underlying support for the stabilization of ROA assumptions. Wellington’s investment strategy team notes that as yields recover, corporate plans with higher fixed-income allocations may modestly increase their ROA assumptions in the coming year; for plans with higher equity allocations, their ROA assumptions will remain relatively stable.

Regarding long-term capital market expectations, Wellington continues to predict that long-term equity and bond returns will struggle to match the levels seen over the past 50+ years. This concern about the downward shift in the long-term return center explains why plan sponsors remain cautious despite the rebound in interest rates. Although rising yields create room for adjusting ROA assumptions upward, the process of derisking into fixed-income assets has not stopped, though the pace has become more measured. Some plans are approaching their end-state, while some overfunded plans are reevaluating their surplus asset investment objectives.

For market participants, understanding the logic behind the evolution of ROA assumptions is key to predicting the flow of US pension funds. The ROA assumption not only determines pension expenses on corporate income statements (as a credit item for expected asset returns) but also profoundly influences pension fund trading behavior in public markets. When ROA assumptions stabilize and interest rates remain high, pension fund demand in the fixed-income market may shift from purely 'hedging liabilities' to 'seeking yields,' which will have a substantive impact on the supply and demand dynamics of long-term bonds. Wellington advises that plan sponsors should develop investment policies based on their own risk-return objectives and investment horizons, rather than forcibly binding specific long-term ROA assumptions to manage pension expenses or reported liabilities.

Sources

  • wellington.comWellington↗
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