Pension Finance Update July 2026

Higher interest rates overcame lower stock prices to deliver positive news for pension finances in July. Both model plans we track¹ gained ground last month: Plan A improved more than 1% last month, and is now up 9% for the year, while the more conservative Plan B gained a smidgen in July and remains up 2% through the first seven months of 2026: 

Assets

Stocks mostly lost ground in July for the second consecutive month. A diversified stock portfolio lost more than 1% last month but is still up 12% through the first seven months of 2026.

Interest rates jumped 0.35% in July. As a result, bonds lost 1-4% of their value last month, ending July down 1-4% for the year, with long-duration corporates faring worst.

Overall, our traditional 60/40 lost 1-2% last month but is still up more than 6% for the year through July, while the conservative 20/80 portfolio lost 2% last month and is up less than 1% through the first seven 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 July 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 climbed 0.35% in July. As a result, pension liabilities fell 2-4% last month and are also now down 2-4% for the year through July, with long-duration plans seeing the largest decreases.

Summary

Since 2022, when interest rates spiked above 5%, rates have continued to (unevenly) melt up, reining in pension liabilities and producing a tailwind for pension sponsors apart from continued strong stock markets. The graphs below show the movement of assets and liabilities during the first seven 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 jumped 0.3% 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.

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.