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April was a volatile month, but pension finance ended the month close to where it started. Both model plans we track[1] were close to flat last month: traditional Plan A gained a fraction of 1%, ending the month down almost 3% for the year, while the more conservative Plan B was flat last month, remaining down 1% through the first four months of 2025:
Assets
Stocks were mixed last month, with overseas markets continuing to outperform significantly this year. Through the first four months of 2025, a diversified stock portfolio is down 2%.
Interest rates were mostly flat last month, although long-term rates edged higher. As a result, long-term bonds lost 1% in April. For the year, bonds remain up 2%-3% through the first four months 2025, with long duration corporates lagging.
Overall, our traditional 60/40 portfolio gained less than 1% last month and is now down a fraction of 1% so far this year, while the conservative 20/80 portfolio also gained less than 1% last month and remains up 1% through the first four months of 2025.
Liabilities
Pension liabilities (for funding, accounting, and de-risking purposes) are driven by market interest rates. The first graph below compares our Aa GAAP spot yield curve at December 31, 2024 and April 30, 2025 (along with the movement in the curve last month). The second graph below shows our estimate of movements in effective GAAP discount rates for pension obligations of various duration during 2025:
Long-term corporate bond yields edged up a few basis points in April. As a result, pension liabilities were flat last month but remain up 2%-3% through the first four months of 2025.
Summary
US stocks remain underwater so far this year, and interest rates are down a smidgen. As a result, pension finance has slipped a bit so far this year. The graphs below show the movement of assets and liabilities during the first four months of 2025:
Looking Ahead
Sustained higher interest rates since late 2022 have substantially diminished the impact of pension funding relief during 2023, 2024, and 2025. Underfunded plans are likely seeing higher required contributions for the next few years.
Long-term rates moved 0.1% higher last month. We expect most pension sponsors will use effective discount rates in the 5.2%-5.6% range to measure pension liabilities right now.
The table below summarizes rates that calendar-year plan sponsors are required to use for IRS funding purposes for 2025, along with estimates for 2026, including the rate “floor” that applies to the 24-month average rates under funding relief for each segment.
[1]Plan A is a traditional plan (duration 12 at 5.5%) with a 60/40 asset allocation, while Plan B is a largely retired plan (duration 9 at 5.5%) with a 20/80 allocation with a greater emphasis on corporate and long-duration bonds. We assume overhead expenses of 1% of plan assets per year, and we assume the plans are 100% funded at the beginning of the year and ignore benefit accruals, contributions, and benefit payments in order to isolate the financial performance of plan assets versus liabilities.