- Investment Strategy Analyst
United States, Institutional
Change
The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
Key points
- Corporate plan ROAs are declining gradually, but higher capital market return assumptions, a result of lower asset valuations and higher yields, may cause this trend to reverse.
- Revision activity in public plan ROA assumptions has picked up somewhat in recent years but is still slower than for corporate counterparts. The latest reported average ROA assumption is 6.9%.
- In terms of capital market assumptions, we continue to predict that long-term equity and bond returns will not keep pace with the returns of the last 50+ years.
- We recommend that sponsors develop their investment policy based on their specific risk and return objectives and time horizon, rather than tying investment policy to a specific long-term ROA to manage pension expense or the reported liability.
As part of their year-end reporting process, US corporate and public defined benefit (DB) plan sponsors must set an assumption for the long-term expected return on assets, or ROA. To help sponsors make more informed decisions, we provide this annual update on ROA assumptions, including our latest trend analysis and long-term capital market assumptions.
Corporate plans
Corporate sponsors use the ROA assumption to determine the pension expense recognized on their income statements. Under US accounting standards, the pension expense includes a credit (income) equal to the plan’s expected return on assets during the fiscal year.
The average ROA assumption reported by Russell 3000 companies at year-end 2021 was 5.2%, roughly 40 basis points (bps) lower than in 2020 (Figure 1). This continues a downward trend — although, as we note later in this paper, we think the trend may reverse in 2022 or 2023 given higher capital market return assumptions. The average ROA assumption has fallen 270 bps since 2006, when the introduction of mark-to-market balance sheet accounting for pension plans by the Financial Accounting Standards Board (FASB) and the passage of the Pension Protection Act by Congress first prompted many plan sponsors to reevaluate their investment strategies.
Figure 1
The distribution of ROA assumptions (Figure 2) sheds additional light on the decline in the average assumption. In 2006, just over 10% of companies selected an ROA assumption below 7.0%. But by 2021, nearly 90% of companies selected an ROA assumption below 7.0%, and the distribution of assumptions skewed more heavily downward than in the past.
Figure 2
Two dynamics have driven the long-term decline in the ROA assumption: higher fixed income allocations, which have increased more than 20% since 2006, and lower forward-looking return expectations, especially in fixed income given the long-term decline in interest rates. Fixed income allocations at year-end 2021 were about…
Experts
- Investment Strategy Analyst
- LDI Team Chair and Multi-Asset Strategist
Related insights
Showing
of
Insights Posts
Why more corporate plans should pass on pension risk transfers
Continue reading
5
min
Article
2025-11-30
Extra credit for corporate plans: Advanced topics in LDI implementation
Continue reading
25
min
Whitepaper
2026-08-31
Private placements: A primer for corporate DB plans preparing to derisk
Continue reading
9
min
Article
2025-08-31
The evolution of derisking: Assessing new and time-tested liability-hedging ideas
Continue reading
22
min
Whitepaper
2026-06-30
Time to derisk? Funded status up, but potential volatility ahead
Continue reading
3
min
Article
2024-11-15
URL References
Related Insights
Stay up to date with the latest market insights and our point of view.
Read next
Showing
of
Insights Posts
Why more corporate plans should pass on pension risk transfers
LDI Team Chair Amy Trainor explains why she believes a pension risk transfer may, in many cases, not be the best choice for fully funded plans from a cost/benefit standpoint.
5
min
Article
2025-11-30
Extra credit for corporate plans: Advanced topics in LDI implementation
To help corporate DB plans refine their liability-hedging strategies, members of our LDI Team take a deep dive on 3 key liability risks and offer ideas to help improve the design of hedging portfolios.
25
min
Whitepaper
2026-08-31
Private placements: A primer for corporate DB plans preparing to derisk
With many corporate DB plans exploring derisking opportunities, Portfolio Manager Elisabeth Perenick and Multi-Asset Strategist Amy Trainor discuss the potential role that private investment-grade credit, or private placements, could play and consider common questions about liquidity and allocation sizing.
9
min
Article
2025-08-31
The evolution of derisking: Assessing new and time-tested liability-hedging ideas
As defined benefit plans contemplate the best path to their eventual “end state,” members of our LDI team update their liability-hedging research with a blend of traditional benchmark ideas and new opportunities to capitalize on changing market conditions and a broader investment universe.
Continue reading
22
min
Whitepaper
2026-06-30
Time to derisk? Funded status up, but potential volatility ahead
LDI Team Chair Amy Trainor explains why US corporate DB plans may have a rare and limited opportunity to derisk and offers suggested action steps.
3
min
Article
2024-11-15
Using defensive equities in a return-seeking portfolio: A factor framework for corporate plans
Members of our LDI and Fundamental Factor teams share their views on defensive equity investments, including their role in a plan's portfolio and the current environment for defensive factors.
Article
2025-03-31
Corporate pension trends and topics: What’s top of mind for 2024?
Members of our LDI Team address a range of topics that US corporate plans will be thinking about in the coming year, from pension funding and accounting issues to portfolio diversification opportunities.
Article
2025-01-31
Setting ROAs for 2024: A guide for US corporate and public plans
How are pension plans adjusting their ROA assumptions? And how do those assumptions line up with our long-term capital market assumptions? Find out in this annual update.
Whitepaper
2024-12-31
Bank downgrades: Should LDI investors be worried?
Members of our LDI team discuss the implications of recent US bank credit-rating downgrades and offer potential next steps for corporate plan sponsors.
Article
2024-11-30
Liability-hedging diversifiers: What’s on your pension’s playlist?
Corporate pensions moving closer to their end state may benefit from more diversified liability-hedging allocations. To help, LDI Team Chair Amy Trainor offers a liability-hedging diversifiers “playlist” — a set of asset classes and strategies that may harmonize well with a variety of objectives, from downside mitigation to long-term outperformance versus long corporate bonds.
Whitepaper
2024-10-31
Keep your spread and earn on it too? The case for intermediate credit
Amid heightened volatility and an uncertain macro environment, members of our LDI Team see opportunity for corporate plans in the intermediate credit market.
Article
2024-06-30
URL References
Related Insights