Pension Finance Update November 2023

Pension finances were mixed in November, as lower interest rates pushed up liabilities while higher stock markets increased asset values. Both model plans we track(1) were close to even on the month. Our traditional Plan A ended November up 9% for the year, while the more conservative Plan B is up almost 2% through the first eleven months of 2023:

(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 jumped across the board in November, reversing a three-month slide and pushing most indexes back into double-digit territory for the year. A diversified stock portfolio added 9% last month and is now up 17% through the first eleven months of 2023:

Treasury yields fell 0.4% during November and corporates fell more than 0.5%, producing record low credit spreads. As a result, bonds gained 4%-8% last month. For the year, a diversified bond portfolio has earned between -2% and +2%, with short duration corporates performing best.

Overall, both plans we track gained ground last month: Plan A added 7% during November, ending the month up 9% for the year, while Plan B gained 6% last month and is now up more than 3% through the first eleven months of 2023.


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, 2022 and November 30, 2023, and it also shows the sharp drop in rates last month. The second graph below shows our estimate of movements in effective GAAP discount rates for pension obligations of various duration so far this year:

Corporate bond yields tumbled more than 0.5% during November. As a result, pension liabilities jumped 5%-9%, ending November flat to up 2% for the year.


With one month to go, 2023 is shaping up to be another solid year for pension finance, driven by higher interest rates and higher stock markets. The graphs below illustrate the path of assets and liabilities for our two model plans through the first eleven months of 2023:

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 interest rates over the past three years means that 2024 funding targets will be higher than market liabilities, in some cases forcing plans to overfund.

Discount rates fell across the board last month, while a flat yield curve continues to compress rates for plans of different durations. We expect most pension sponsors will use effective discount rates in the 5.3%-5.6% range to measure pension liabilities right now.

The table below summarizes rates that plan sponsors are required to use for IRS funding purposes for 2023, along with estimates for 2024. Pre-relief, both 24-month averages and December ‘spot’ rates, which are still required for some calculations, such as PBGC premiums, are also included.