In August, defined benefit pension plan sponsors likely experienced an increase in funded status due to gains from return-seeking assets and credit spreads. The Treasury yield curve decreased along the front end of the curve while remaining relatively flat at the long end; the 10-year yield dropped to 4.23% and the 30-year yield rose three basis points to 4.92%.
Changes in Treasury rates had a modestly negative impact on funded status for the total-return and LDI-focused plans, but was offset by gains from credit spreads and return-seeking assets. The discount rates for NEPC’s hypothetical pension plans increased about one basis point to 5.69% for the open total-return plan, while the discount rate for the frozen LDI-focused plan fell four basis points to 5.44%. Both NEPC’s hypothetical total-return pension plan and LDI-focused plan saw increases in funded status of 1.8% and 0.9%, respectively.
We anticipate continued market volatility and the potential for market disruption. Plan sponsors should remain diligent about monitoring sources of change in funded status versus expectations, as equities and interest rates are likely to remain volatile. This includes closely observing interest-rate hedge ratios and allocating across the yield curve as interest rates change.
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Due to a provision in the Bipartisan Budget Act of 2015 (BBA 2015), the PBGC premium filing due date for plan years beginning in 2025 may be accelerated to September 15, 2025 instead of the usual due date of October 15, 2025. This one-time provision will impact when cash needs to be raised to fund the premium payment. The PBGC premium due date is expected to revert to October 15 in 2026.
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