Pension Finance Update January 2024

Pension finances improved modestly in January, as higher interest rates more than offset the impact of mixed stock markets. Both model plans we track(1) were up a fraction of 1% for the month:

(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.


Stocks were mixed during January. A diversified stock portfolio lost less than 1% last month:

Interest rates moved higher last month, up about 0.1% during January. As a result, bonds lost about 1% last month, with long duration bonds performing worst.

Overall, our traditional 60/40 portfolio lost less than 1% during January, while the conservative 20/80 portfolio also lost a fraction of 1%.


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, 2023 and January 31, 2024. The second graph below shows our estimate of movements in effective GAAP discount rates for pension obligations of various duration during January:

Corporate bond yields rose a bit more than 0.1% in January. As a result, pension liabilities lost about 1% during the month, with long duration plans seeing the largest drops.


Most pension sponsors have enjoyed strong improvement in finances since the end of 2019, with aggregate funded status reaching the high point this century. 2024 began with a modest improvement in funded status, as higher interest rates reduced liabilities more than assets last month. The graphs below show the movement of assets and liabilities during January 2024:

Looking Ahead

Pension funding relief was signed into law during March of 2021, and additional relief was provided by November 2021 legislation. The new laws substantially relaxed funding requirements over the next several years, but the increase in rates seen in the past year has significantly eroded the impact of relief.

Discount rates moved 0.1% higher last month. We expect most pension sponsors will use effective discount rates in the 4.9%-5.2% 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 2024, along with estimates for 2025. Pre-relief, both 24-month averages and December ‘spot’ rates, which are still required for some calculations, are also included.