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 2025 was 5.9%, unchanged from the average in 2024. Over the past three years, the average ROA assumption has stabilized after reversing a 15-year downward trend. Still, the average ROA assumption is 200 bps lower than in 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.
The distribution of ROA assumptions sheds additional light on the long-term decline in the average assumption. In 2006, just over 10% of companies selected an ROA assumption below 7.0%. But by 2022, 90% of companies had selected an ROA assumption below 7.0% and revisions had occurred across the board. Two dynamics drove the long-term decline in the ROA assumption through 2022: 1) higher fixed income allocations, which had increased more than 20 percentage points since 2006, and 2) lower forward-looking return expectations, especially in fixed income given the decline in interest rates between 2008 and 2021.
These dynamics have since reversed or stabilized. After broad-based drawdowns in 2022, many companies reset return expectations higher for both equities and bonds. In addition, the pace of derisking into fixed income has been incremental given the short time frame. We expect continued derisking but believe it may come at a more measured pace as some plans are at or near their end-state while some overfunded plans are reevaluating their surplus investment objectives.
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