Pension Finance Update March 2026

Pension finances lost ground in March due to declining stock markets, but higher interest rates softened the blow. Both model plans we track[1] lost 1% last month, and are now slightly underwater through the first quarter of 2026:

Assets

March was a turbulent month for stocks, which ended the month broadly lower. A diversified stock portfolio lost 6% during March, ending the quarter down 2% for the year.

Interest rates jumped 0.30% during March, while credit spreads widened modestly. As a result, bonds lost 2%-4% last month and are now flat to down 1% through the first quarter of 2026.

Overall, our traditional 60/40 portfolio lost 4% in March, ending the quarter down 1% for the year, while the conservative 20/80 portfolio lost 3% last month and is also down 1% through the first quarter 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 March 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 durations during 2026:

Corporate bond yields rose more than 0.30% in March. As a result, pension liabilities fell 2%-4% last month, ending the quarter down 1%-2%, with long-duration plans seeing the largest increases.

Summary

Lower stocks were partially offset by higher interest rates last month, producing a decline in funded status and pushing plans modestly underwater for the year through March. The graphs below show the movement of assets and liabilities during the first quarter of 2026:

Looking Ahead

Sustained higher interest rates since late 2022 have substantially diminished the impact of pension funding relief during 2023-2026. Underfunded plans are likely to see higher required contributions for the next few years.

Discount rates moved 0.3% higher last month. We expect most pension sponsors will use effective discount rates in the 5.4%-5.8% 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 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.