80 Percent Funded Status? Now What?

By: Michael Buchenholz, J.P. Morgan Asset Management, and David Murad, NISA

Funded status alone rarely provides a complete picture of a pension system's well-being. Yet, across the country, actuaries are reporting improvements in funded status to public pension board members—many crossing this 80% threshold for the first time in over a decade. As plans, board members, staff, and advisors celebrate this achievement, a critical question arises: “Now what?”

This is an excerpt from NCPERS Fall 2025 issue of PERSist.

There is a popular myth in the financial media that reaching an 80% funded status is the ultimate benchmark for pension plan health¹. In reality, there is no magic number, and funded status alone rarely provides a complete picture of a pension system's well-being. Yet, across the country, actuaries are reporting improvements in funded status to public pension board members—many crossing this 80% threshold for the first time in over a decade. As plans, board members, staff, and advisors celebrate this achievement, a critical question arises: “Now what?” Public pension plans in this position may want to consider the following actions to help protect and build on this valuable ground gained. Further, plans that are not quite there should also take a cue from these concepts, as there is no natural or discrete point in time where what is appropriate for managing a plan and its risks changes wholesale. 

Team Approach 
Each system has a unique set of financial circumstances, plan design, demographics, and investment approach. The only way to ensure that the board is making informed decisions is through cooperation among stakeholders. A nearly universal objective of pension investments is to fund, along with contributions, the contractual benefit obligations promised to participants. Indeed, key actuarial funding principles start with the fact that Contributions + Investment Returns = Benefits + Expenses. However, in many cases, the team focused on measuring and analyzing plan liabilities is largely siloed from the team deciding how to invest the assets that must satisfy those same liabilities. So the left-hand side and the right-hand side of the equation can only be made to balance out as risks on either side of the equation are borne out, largely in isolation, rather than addressing those risks head-on. Driving organizational alignment—by integrating both actuarial experts and investment advisors through formal or informal meetings—can help ensure that investment decisions are aimed at the right target: funding the liabilities. 

Strategic Asset Allocation 
Public pension asset allocation exercises generally seek to meet or exceed the expected return target with an acceptable level of asset volatility. Rarely considered, however, is the plan's funded status volatility, which measures the tracking error between plan assets and liabilities, similar to how a US Large Cap manager measures tracking error relative to the S&P 500. Portfolios that are more closely aligned and highly correlated with liability returns will generally exhibit lower levels of funded status volatility and experience shallower funding drawdowns than their higher funded status volatility counterparts. With typical funding policies, this would also suggest lower required contribution volatility to maintain benefits. 

What Can I Do? 
Bringing the stakeholders together to investigate better solutions is the goal, and with this in mind, the following probing questions are useful for board members to consider:

• Portfolio decision drivers: When presented with multiple portfolios that meet the actuarial return assumption with acceptable asset volatility, can differences in funded status volatility help identify the preferred choice? For example, ask your advisors what assets have the highest correlations with the liability?
• Fully-funded allocation: How will the plan's asset allocation evolve when it reaches a surplus position?
• A wolf in sheep's clothing?: Cash is the lowest volatility asset, but due to re-investment risk, it actually can be highly risky relative to the long-dated obligations of a pension plan. Ask your investment advisors what assets are less risky for a pension?
• Investment glidepath: What allocation changes can be made today to put the plan on a path to protecting and improving funded status, while incorporating the investment beliefs embedded in a “fully funded” allocation? 

Funded Status Monitoring 
While funded status is not a comprehensive measure of plan health, most would agree that it provides valuable information in monitoring how a plan is doing and should influence how plan assets are invested. Its importance can be demonstrated by observing that funded status (usually on a smoothed basis), is the primary input to required contribution calculations. If we accept its importance, we must also acknowledge the usefulness of monitoring funded status more frequently than on an annual basis. This process is not meant to replace the experience study cycle and the discount rate setting process, but rather to enhance investment decision-making in the interim. 

Assets are reported on both a smoothed (actuarial) and economic (mark-to-market) basis. Analogously, liabilities can be reported on a “smoothed” basis (the infrequently adjusted actuarial assumed rate of return) and a mark-to-market basis, where the latter “trues-up” the assumed rate of return to prevailing market conditions. This process also provides transparency to stakeholders regarding the direction of the official discount rate, allowing for better planning and fewer surprises. 

Conclusions
Achieving an 80% funded status is a noteworthy accomplishment for public pension plans, but it should not be viewed as a standalone indicator of plan health. True long-term sustainability requires an integrated approach that aligns asset management with liability analysis. By fostering collaboration among stakeholders—bringing together actuarial experts and investment advisors—plans can ensure that investment strategies are directly informed by the nature and timing of benefit obligations. 

Strategic asset allocation can go beyond meeting return targets and managing asset volatility, by also considering funded status volatility and the correlation between asset and liability returns. Regular, transparent monitoring of funded status using both actuarial and mark-to-market measures further supports informed decision-making and helps anticipate future challenges. Ultimately, a holistic framework that unifies asset and liability perspectives enables boards and advisors to make decisions that protect and strengthen the financial health of the pension plan, ensuring the security of promised benefits for participants. 

Endnotes: 
¹The 80% Pension Funding Myth, Academy of Actuaries, October, 2021 (https://www.actuary.org/wp-content/uploads/2021/10/80percent_Myth_Issue_Brief.pdf) 

_{Disclosures: This document is intended solely to report on various investment views held by J.P. Morgan Asset Management. Opinions, and statements of financial market trends are based on current market conditions, constitute our judgment and are subject to change without notice.}  

Bios: Michael Buchenholz, CFA, FSA, is Managing Director, Head of U.S. Pension Strategy, in the institutional solutions strategy and analytics team at J.P. Morgan Asset Management, Inc., helping pension funds design and implement asset allocations that achieve their specific objectives.  

Prior to his current role, Buchenholz was a client portfolio manager in fixed income global LDI solutions, responsible for combining fixed income views and actuarial and accounting considerations in order to design customized investment strategies for corporate pension plans. An employee since 2013, Buchenholz previously held roles as an actuary in Mercer's financial strategy and retirement groups.  

He holds a B.S.B.A. degree in mathematics (probability and statistics) and finance from Washington University as well as an M.B.A. degree in finance and economics from Columbia University. Michael is a Fellow of the Society of Actuaries (FSA), a Chartered Enterprise Risk Analyst (CERA) and a CFA charter holder. 

David Murad, CFA, ASA, CERA is the Director, Investment Strategies in NISA's Investment Strategies Group. He oversees the team that develops proprietary financial modeling and engineering tools used throughout NISA. He also supports NISA's Strategic Portfolio Management team which is charged with maintaining hedge strategies, including completion portfolios and exposure management strategies. He is also a member of NISA's liability analysis team which works with clients and their actuaries to estimate the market exposures of a plan's liabilities. 

Prior to joining NISA in 2019, he was a Managing Director at Rocaton Investment Advisors, consulting for a wide variety of institutional clients on asset allocation, capital markets, liability driven investing and other investment issues. Prior to that, he was an actuarial consultant at Buck Consultants.  

David earned a BA in Statistics and Psychology from Rice University, is an Associate of the Society of Actuaries, and is a CFA Charterholder.