Pension Finance Update September 2025

Higher stocks again drove improvement in pension finances during September. Both model plans we track[1] gained ground last month: traditional Plan A gained a fraction of 1%, ending the month up almost 6% for the year, while the more conservative Plan B gained a fraction of 1% last month, ending the month up more than 1% through the first three quarters of 2025:

Assets

Stocks enjoyed another strong month in September, with all major indexes gaining ground. A diversified stock portfolio gained almost 4% last month and is now up almost 18% for the year:

Long-term interest rates moved lower by 0.2% during September. As a result, bonds gained 2%-3% last month. For the year, bonds are up 5%-7%, with corporate bonds outperforming due to tightening credit spreads.

Overall, our traditional 60/40 portfolio gained 3% last month and is now up 12% so far this year, while the conservative 20/80 portfolio gained 2% last month and is now up more than 7% through the first three quarters of 2025.

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, 2024 and September 30, 2025 (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 2025:

Long-term corporate bond yields fell 0.2% during September, ending the month at their lowest level this year. As a result, pension liabilities increased 2%-3% last month, ending September up 6%-7% for the year so far.

Summary

Pension finances have enjoyed continued tailwinds in 2025, as double-digit stock returns have outpaced modest declines in interest rates. The graphs below show the movement of assets and liabilities for our two model plans through the first three quarters of the year:

Looking Ahead

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

Long-term rates moved 0.2% lower last month as the yield curve continues to steepen. 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 2025, along with estimates for 2026, 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.