NEPC's February 2025 Pension Monitor

In February, defined benefit pension plan sponsors likely experienced a decrease in funded status for total-return plans due to falling Treasury rates and declines from return-seeking assets. During this period, global equities posted a modest loss. The Treasury yield curve decreased across most tenors for the month and corporate pension plans likely experienced downward pressure on funded status if they were underhedged to interest rates. NEPC’s hypothetical total return pension plan saw a decrease of 2.2% in funded status compared to a modest increase of 0.1% for our LDI-focused plan.

Rate Movement Commentary

The Treasury yield curve shifted downwards in February. The 10-year yield declined to 4.24%, while the 30-year yield decreased 32 basis points to 4.51%. Corporate bond spreads widened modestly last month.

The movement in Treasury rates and credit spreads resulted in lower pension discount rates used to value pension liabilities. The discount rates for NEPC’s hypothetical pension plans decreased about 24 basis points to 5.45% for the open total-return plan, while the discount rate for the frozen LDI-focused plan fell 24 basis points to 5.33%.

Plan Sponsor Considerations

In February, global public equities declined modestly, while long-dated fixed-income securities posted large gains amid falling Treasury rates. Treasury yields shifted downward last month across the curve, while credit spreads widened slightly. 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 fell 1.3% in February, according to the S&P 500 Index. During the same period, non U.S. equities experienced gains with international developed markets up 1.9%, according to the MSCI EAFE Index. Emerging market equities gained 0.5% last month, according to the MSCI EM Index. Broadly, global equities decreased 0.6% during this period, according to the MSCI ACWI Index.

In February, the Treasury curve decreased from the prior month and remains relatively flat. This generally resulted in gains for investment-grade fixed-income markets, including long-credit fixed income and long Treasuries. During this period, the Bloomberg Long Treasury Index increased 5.2% and the Bloomberg Long Credit Index was up 3.5%.