In 2025, sweeping policy reforms and market forces have set the stage for a profound transformation in how pension funds allocate their assets. Plan sponsors and participants alike are navigating a new landscape defined by regulatory enhancements, robust funded ratios, and evolving strategies to manage risk and opportunity.

Major policy changes reshape the retirement landscape

Building on legislation passed in prior years, the SECURE 2.0 Act’s automatic enrollment mandate took effect for plan years beginning January 1, 2025. This landmark rule requires new 401(k) plans to enroll eligible employees by default, unless employers opt out under narrow exemptions. At the same time, the act has expanded eligibility for part-time workers, enabling those who work at least 500 hours per year for two consecutive years to participate in retirement plans.

In addition, catch-up contribution limits for those aged 50 and above have been adjusted, with high-earning participants now facing Roth-only catch-up contributions—referred to as “Rothification.” These shifts aim to boost savings rates and simplify tax treatments across diverse income brackets.

• Mandatory auto-enrollment for new plans, raising baseline participation.
• Inclusion of long-term part-time workers after two years of service.
• Revised catch-up contribution rules emphasizing Roth deferrals.
• Increased maximum pension payout to $280,000 per year.

Looking ahead, proposals for “SECURE 3.0” could lower the minimum participation age to 18, introduce automatic escalation features, and mandate a menu of payout options—such as annuities, systematic withdrawals, and guaranteed income products—at retirement.

Strong funded statuses drive strategic allocation shifts

Thanks to years of solid equity performance and persistently higher interest rates, many corporate defined benefit plans have reached fully funded or overfunded positions. According to the Milliman 100 Pension Funding Index (PFI), the aggregate funded ratio for major US corporate pensions is projected to end 2025 at 105.8%, with an expected surplus of $68 billion.

Under an optimistic scenario—assuming further rate increases and a 10.53% return on assets—the funded ratio could climb to 112% by year end, with a surplus surpassing $86 billion in 2026. Conversely, a pessimistic outlook (2.53% returns and lower rates) would see the funded ratio slip to 100% in 2025 and 91% in 2026.

De-risking and diversification: new allocation trends

With balance sheets looking healthier, pension plan managers are shifting from pure growth orientation toward liability-hedging strategies. Many funds are increasing allocations to high-quality fixed income—particularly investment-grade corporate bonds and long-duration treasuries—to lock in attractive yields and match future liabilities.

Simultaneously, a growing number of sponsors are exploring pension risk transfers, purchasing annuities to offload longevity and market risk to insurance carriers. Others are considering full plan terminations, using surplus assets to secure retiree benefits and eliminate sponsor liabilities.

• Higher exposure to fixed-income securities for duration matching.
• Pension risk transfers and annuity buyouts to insurers.
• Reappraisal of governance structures to optimize surplus use.
• Enhanced in-plan lifetime income features for participants.

Implications for beneficiaries and plan sponsors

For employees and retirees, these allocation shifts promise stronger benefit security and a broader array of payout options. As sponsors adopt more conservative portfolios, plan participants near retirement can expect reduced volatility in their promised benefits.

Participants in defined contribution plans are also seeing changes. The integration of automatic escalation and default target date funds, coupled with higher catch-up limits ($7,500 to $11,250 for older workers), underscores a wider industry push to simplify saving and improve retirement readiness.

• Consider reallocating balances toward bond funds as retirement nears.
• Leverage new catch-up allowances to accelerate savings after age 50.
• Review default investment menus for in-plan annuity or managed payout options.

Looking ahead: economic and political considerations

The march toward SECURE 3.0 and debates over reversing Roth-related mandates keep the regulatory outlook fluid. Meanwhile, updates to Social Security in 2025—such as a new maximum benefit of $4,018 per month and a 2.5% SSI increase—are reshaping the broader retirement income framework.

Market volatility and concerns over Social Security solvency are spurring both individuals and plan sponsors to bolster private savings and revisit asset allocations. In this environment, advisors are emphasizing diversified portfolios aligned with personal risk profiles, blending equity growth potential with bond-based liability hedges.

As we navigate this era of policy-driven change, a proactive stance is critical. For plan sponsors, that means continually reexamining funding strategies, governance models, and benefit designs. For individuals, it means staying informed about evolving plan features and aligning personal portfolios with both market conditions and programmatic shifts.

Ultimately, the intersection of robust funding, regulatory reform, and strategic asset allocation offers an unprecedented opportunity to enhance retirement security for millions of Americans—if stakeholders remain vigilant, agile, and collaborative in forging the next chapter of retirement planning.