Pension Finance Update February 2026

Pension finances slipped in February, as lower interest rates pushed liabilities higher. Both model plans we track[1] lost ground last month: traditional Plan A lost 1% but remains almost 1% ahead for the year, while the more conservative Plan B lost a fraction of 1% and is now barely above water through the first two months of 2026:

Assets

US stocks were mixed last month. Through February, a diversified portfolio is up 4% this year, led (as in 2025) by overseas markets.

Treasury rates fell 0.25% last month after a flat January, while corporate bond yields fell 0.15% on widening credit spreads. As a result, bonds ended February up 1%-3% so far this year, with long-duration Treasuries performing best.

Overall, our traditional 60/40 portfolio ended the month up 3% so far this year, while the conservative 20/80 portfolio is now up more than 2% through the first two months of 2026.

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, 2025, and February 28, 2026 (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 durations during 2026:

Corporate bond yields declined 0.15% in February after a flat January. As a result, pension liabilities have grown 2%-3% through the first two months of 2026, with long-duration plans seeing the largest increases.

Summary

Lower interest rates put a modest dent in pension finances last month, erasing half of the good news sponsors enjoyed during January. The graphs below show the movement of assets and liabilities during the first two months of 2026:

Looking Ahead

Sustained higher interest rates since late 2022 have substantially diminished the impact of pension funding relief during 2023-2026. Underfunded plans are likely to see higher required contributions for the next few years.

Discount rates moved 0.1% lower last month. We expect most pension sponsors will use effective discount rates in the 5.1%-5.5% 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 2026, along with estimates for 2027, including the rate “corridor” 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.