NEPC's January 2025 Pension Monitor

In January, defined benefit pension plan sponsors likely experienced an increase in funded status fueled by gains in global equities. The Treasury yield curve and credit spreads remained mostly unchanged from the end of December. NEPC’s hypothetical total-return pension plan saw an increase of 2.1% in funded status compared to an increase of 1.4% for our LDI-focused plan.

Rate Movement Commentary

Despite intra-month volatility, the Treasury yield curve held firm in January. The 10-year yield stayed at 4.58%, while the 30-year yield increased five basis points to 4.83%. Corporate bond spreads also remained steady for the month and were tight relative to historical levels.

The minimal movement in Treasury rates and credit spreads resulted in fairly static discount rates used to value pension liabilities. The discount rates for NEPC’s hypothetical pension plans increased about three basis points to 5.69% for the open total-return plan, while the discount rate for the frozen LDI-focused plan increased one basis point to 5.57%.

Plan Sponsor Considerations

In January, global public equities experienced gains primarily driven by strong returns from both U.S. and international developed market equities. Long-dated fixed-income posted modest gains as Treasury rates and credit spreads held steady for the month. 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.

Market Environment and Yield Curve Movement

U.S. equities increased 2.8% in January, according to the S&P 500 Index. During the same period, non-U.S. stocks also experienced gains with international developed markets up 5.3%, according to the MSCI EAFE Index. Emerging market equities returned 1.8% last month, according to the MSCI EM Index. Broadly, global equities increased 3.4% during the month, according to the MSCI ACWI Index.

At the end of January, the Treasury curve remained relatively flat. This generally resulted in positive performance for investment-grade fixed-income markets, with long-credit fixed income and long Treasuries both experiencing modest gains. During the month, the Bloomberg Long Treasury Index rose 0.4% and the Bloomberg Long Credit Index was up 0.4%.