Rising Discount Rates Drove Down Pension Liabilities in April

The largest U.S. corporate pension funds had a modest recovery in April, as rising discount rates reduced plan liabilities enough to offset a shaky stock market. The improvement followed a rocky first quarter, which suffered from a more severe equities downturn.

The funded status of the largest 100 U.S. corporate pension plans grew by $3 billion during April, while the funding ratios of these plans increased to 102.9%, up from 102.7% in March, according to Milliman. The modest rise follows an $11 billion funded status decline in Q1.

Pension liabilities fell by $10 billion in April to $1.22 trillion, driven by a 7-basis-point rise in monthly discount rates, which were 5.57% in April, according to Millman.

Meanwhile, pension assets dipped $8 billion during the month to $1.25 trillion due to a negative 0.12% investment return.

According to Mercer, pension plans sponsored by S&P 1500 companies saw their funded status increase by one percentage point in April to 104%. During the month, aggregate surpluses increased to $55 billion from $40 billion in March.

The S&P 500 Index fell by 0.76% in April, but most of the decline was felt early in the month, nearly offset by a market rally toward the end of April. Still, the decline was much smaller than March’s 5.6% loss.

“We saw domestic equities sell off significantly in early April following the tariff announcements, leading to a surge in market volatility,” Scott Jarboe, a partner in Mercer, said in a statement. “On the other hand, international equities had a strong month, pairing with another modest discount rate increase, resulting in the pension funded status improving for the month.”

WTW’s pension index increased after falling in the previous two months, as discount rates increased. The index hit 119.3 in April, an increase of almost one percentage point from March.

Wilshire reported the aggregate funding ratio for U.S. corporate pension plans increased by 0.3% in April to 103.3%. According to the firm, asset values grew 0.4%, driven by a 0.6% decrease in plan liabilities. The funded ratio of corporate pension plans has grown 3.2 percentage points year-over-year, up from 100.1% in April 2024, according to Wilshire.

According to October Three Consulting, a traditional 60/40 portfolio gained less than 1% in April to around 97.5%, while a conservative 20/80 portfolio also gained less than 1% to about 99% funded.

Despite the modest changes in April, the S&P 500 has rallied more than 9% from mid-April through May 15, bringing the index into positive-return territory year-to-date, after sitting in the red for most of the year.

Still, the market has made several big swings this year in both directions, which Mercer’s Jarboe said plan sponsors should keep in mind moving forward.

“There was a strong bounce back and the market stabilized in the second half of April, ultimately leaving the S&P 500 down less than one percent month over month,” Jarboe said in a statement. “As there is still uncertainty around the economy, plan sponsors should prepare for potential fluctuations in the coming months.”

Tags: corporate defined benefit pension funding level, Mercer, Milliman, October Three Consulting, Wilshire, WTW