Pension Finance Update August 2026

Rising stock markets delivered yet another positive month for pension finances during August. Both model plans we track¹ gained ground last month: Plan A improved 1% last month, and is now up 10% for the year, while the more conservative Plan B gained a fraction of 1% during August and is now up more than 2% through the first eight months of 2026:

Assets

Stocks gained ground in August, with all major indices ending the month up double-digits so far this year. A diversified stock portfolio gained almost 3% last month and is now up 15% through the first eight months of 2026.

Interest rates were close to flat last month. As a result, bonds gained less than 1% last month, ending August flat to down 3% for the year, with long-duration corporates faring worst.

Overall, our traditional 60/40 gained 1-2% last month and is now up 8% for the year through August, while the conservative 20/80 portfolio gained 1% last month and is up 1% through the first eight 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 on December 31, 2025 and August 31, 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 duration during 2026:

Corporate bond yields were close to flat in August. As a result, pension liabilities rose 1% last month and are now down 1-3% for the year through August, with long-duration plans seeing the largest decreases.

Summary

2026 is shaping up to be yet another strong year for pension finances, on the strength of higher stock markets and higher interest rates. The graphs below show the movement of assets and liabilities during the first eight months of 2026:

Looking Ahead

Remorselessly higher interest rates since late 2022 have neutralized the impact of pension funding relief during 2023-2026. At current rates, “funding relief” could force sponsors to exaggerate liabilities by 5% or more in 2027 (see table below) and later years, increasing required contributions and forcing some overfunded plans to make additional contributions.

Discount rates were mostly unchanged last month. We expect most pension sponsors will use effective discount rates in the 5.7%-6.1% range to measure pension liabilities right now. Rates are now the highest they have been since 2010 (apart from a blip in October 2023).

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.

¹Plan 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.