In July, defined benefit pension plan sponsors likely experienced an increase in funded status due to an uptick in Treasury rates. During this period, the Treasury yield curve rose across all tenors while credit spreads tightened. The 10-year yield increased to 4.37%, while the 30-year yield rose 11 basis points to 4.89%.
The increase in Treasury rates offset the contraction in credit spreads, resulting in higher pension discount rates and lower pension liabilities. The discount rates for NEPC’s hypothetical pension plans rose about three basis points to 5.68% for the open total-return plan, while the discount rate for the frozen LDI-focused plan was four basis points higher at 5.48%. Both NEPC’s hypothetical total-return pension plan and LDI-focused plan saw modest increases in funded status of 1% and 0.6%, respectively.
At NEPC, 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 monitoring 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 the timing of when cash needs to be raised to fund the premium payment. The PBGC premium due date is expected to revert back to October 15 in 2026.
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