DB pension surplus survey results 

It is an interesting time for defined benefit plan sponsors. Over recent years, many corporate defined benefit (DB) pension plans have moved from a deficit funding position into a surplus funding position. 

Historically, many likely would have taken this opportunity to hibernate their plan, choosing lower-risk assets to match the liabilities or transferring risk off the sponsor’s balance sheet entirely.

But now things are different. Creative options exist for plan sponsors to utilize their DB pension plan surplus to potentially save organizations significant capital for other employee benefit programs and purposes. There was even Senate legislation proposed last year to offer DB plan sponsors an option to utilize their plan surplus, to fund other retirement plan benefits, such as non-elective DC contributions. So how are plan sponsors responding?

To understand this, we carried out a survey^[1] of 64 U.S. based DB plan sponsors, representing a broad cross-section of industries and large employers. 

Most respondents are directly involved in pension decision-making. Over 60% identify as key decision-makers, while the remainder have strategic input into plan decisions.

Participants are predominantly from large organizations, with over half reporting plan assets exceeding $1 billion and almost half employing more than 20,000 people. The respondent base spans functions including HR, financial reporting, and investment management, ensuring perspectives reflect both strategic and operational priorities in managing DB pension plans.

Our research shows significant uncertainty among sponsors. As we demonstrate below, plan sponsors recognize the potential in their surplus plan assets, but face difficulty in knowing how to access the surplus appropriately. Tax and financial statement impacts play a significant role in decision-making, which may go some way to explaining the lower than expected take-up of “U-shaped” glidepath strategies that can help drive higher overall returns.

In our “Top Considerations for DB Plan Sponsors in 2026” paper, we highlighted the important potential implications of rising DB funding levels, coupled with potential regulation giving sponsors new options for how they use their surplus assets. 

The survey responses suggest that respondents want to make use of these options, but face obstacles in doing so. An overwhelming 95% of respondents see value in their surplus pension assets, but almost six in ten (58%) note that these assets are difficult to utilize (Figure 1).

Sponsors showed the greatest interest in strategies that save cost by utilizing surplus assets to fund defined contribution benefits (44%).^[2]  This is accomplished following a full or partial plan termination (unless prospective legislation is passed to provide additional flexibility for on-going DB pension plans). The next most popular options involve strategies that keep the plan in place while putting surplus to work.  These options included using surplus assets to support workforce change initiatives, such as early retirement windows or reductions in force (43%), as well as, using surplus in an ongoing plan to fund retiree medical, life, or qualified executive retirement benefits (39%) and supporting strategic M&A activity (30%).

Overall, sponsors favor surplus strategies that support workforce, benefits, or corporate finance goals over more radical options like reopening plans or taking full reversions post-plan termination. The most popular options were those that balance financial efficiency with workforce and business strategy while remaining feasible and compliant.

Financial reporting considerations are also an important influence on decision-making: 78% of respondents say that the impact on financial statements is a potential barrier to utilizing surplus strategies. Taken together, the results point to a cautious and pragmatic approach, with sponsors balancing long-term plan objectives against the potential accounting consequences of the strategies available to them.

Most respondents – 89% – have a clear long-term objective for their pension plan (Figure 2). 

Within this group, the most common approach is to retain the plan indefinitely while pursuing risk transfer opportunities selectively, cited by 44% of respondents. A further 28% intend to keep the plan open and pay out all benefits over time, while only 17% expect to terminate the plan once it becomes feasible to do so.

This suggests that, although sponsors are not rushing toward plan termination, many remain open to risk transfer as part of a longer-term strategy.

Tax implications also play a significant role in decision making, as respondents anticipate significant tax implications if they terminate their scheme to take a reversion on the surplus. A fifth of respondents expect that such a move would lead to tax rates over 70% on the surplus. Almost a quarter (24%) of respondents anticipate tax rates of 51-70%, and 36% of respondents anticipate tax rates of 30-50% (Figure 3).

In theory, unless the plan sponsor is a nonprofit organization, the taxes payable if all surplus assets were returned to the plan sponsor would be a 50% excise tax, plus ordinary income tax (often 21%). Non-profit organizations can typically have all surplus assets returned without excise tax implications.

However, in practice, almost no plan sponsors pay anywhere near 71% in taxes on surplus reversions, as there are fortunately methods to eliminate or significantly reduce the excise tax. If all surplus is used for a qualified replacement plan or pro rata benefit increases, there is no taxable reversion as the surplus would be used in a qualified replacement plan. If at least 25% of the surplus is used in a qualified replacement plan (or 20% for pro rata benefit increases), the excise tax on the residual is reduced from 50% to 20%, resulting in a much lower effective tax rate.  There are creative solutions to help maximize the value of the surplus and help minimize the tax implications.

Sponsors with fully funded plans^[4] have historically taken a defensive approach to their plan assets, with only a minority pursuing asset growth.

The majority (56%) say they plan to “hibernate”, maintaining surplus through a hedging portfolio rather than allocating to return-seeking assets. By contrast, 26% have retained return-seeking exposure in an effort to grow surplus further. A further 14% say they would consider adopting a greater allocation to return-seeking assets, but do not yet have a formal glide path in place. We have seen recent anecdotal evidence that the 44% of plans who would consider taking more risk in an overfunded plan are actively evaluating and pursuing these strategies. (Figure 4.)

In a recent paper, we explored the potential return-seeking benefits of adopting a formal “U-shaped” glide path. This strategy is at present only being pursued by a small minority of plan sponsors - just 4% in this survey.  

The findings suggest that relatively few sponsors are actively pursuing strategies designed to increase surplus through additional investment risk, even among plans in a strong funding position. Rather, we see a continued preference for preserving funded status over seeking further upside, despite the potential strategic value that additional surplus could create.

Mercer suggests in our aforementioned paper that not all assets need to have a defensive posture, largely avoiding risk and growth potential.  With more education around the potential uses of pension surplus and the value that it can create across an organization, we expect increased interest in the “U-shaped” glide path through a philosophical segregation of two asset pools within the plan – a “floor” portfolio to be devoted to maintaining sufficient assets to meet all plan obligations, including benefit payments and expenses, and a “growth” portfolio with the focus of increasing the surplus and diversifying the plan investments.  As detailed in our paper, Mercer’s simulations suggest the “U-shaped” glide path is more likely to produce better funded status results for the plan than the traditional hibernation portfolio under various economic conditions.

With funded positions improving for many plan sponsors, Mercer believes it’s timely to reexamine the strategic potential of pension surpluses. Our survey shows that while most sponsors recognize surplus can be valuable, many lack a clear plan to realize that value. A defined surplus strategy — accounting for today’s available options and the expanded uses contemplated in recent legislation — can turn potential uses into actual tangible outcomes. Mercer can help plan sponsors evaluate choices, prioritize objectives, and implement a practical roadmap to help unlock surplus value.

^[1] All responses are sourced from Mercer’s 2026 DB Surplus Utilization Survey obtained in April 2026. Responses were provided by 64 defined benefit decision-makers in the U.S. Unless otherwise noted, statistics shown throughout this report reflect results from responding plan sponsors. It is important to note they did not receive a form of compensation for participation. It is important to recognize that survey results are subject to inherit limitations and uncertainties. The survey results may not capture all relevant factors or market conditions. These results should not be constructed as personalized investment advice.

^[2] Percent of respondents who (1) have, (2) have plans to, or (3) would consider implementing the surplus strategy. 

^[3] Note, it is recommended that plan sponsors carefully review the tax implications with accounting experts and legal counsel prior to pursuing a reversion strategy. Mercer cannot provide tax or legal advice.  Commentary is meant to provide general trends; actual tax implications can vary significantly by organization.

^[4] 57 of the total respondents

^[5] Data allocated to show percentage across 57 plans (n-=57)