International and domestic equities posted moderate gains in the fourth quarter, further cementing year-to-date returns. As a result, funded ratio improved for many plan sponsors. During the three months ended December 31, the 30-year Treasury yield increased 11 basis points to 4.84%. Credit spreads remained tight with long credit spreads increasing four basis point during the quarter. The discount rate for the open total-return plan rose 13 basis points to 5.62% and the discount rate for the frozen LDI-focused plan increased nine basis points to 5.36%.
We estimate the funded status of our total-return plan added about 3.8% over the quarter. As a result of gains in return-seeking assets, our LDI-focused plan experienced a funded status increase of 2.1%.
Total-return plans may want to consider the impact of rate changes on plan liabilities and the role of LDI in light of the current rate environment. For certain plan sponsors, lower rates may increase liabilities and reduce funded status, which could lead to higher required contributions and PBGC variable rate premiums. NEPC consultants are available to discuss the impact and cost of various pension finance and derisking strategies in light of rate movements and volatility in the market.
Rate Movement
Retiree Buyout Index
The Buyout Index for Retirees is estimated to be approximately 106.0% of PBO as of December 31, 2025.
Recent Insights from NEPC
The NEPC Guide to Private Debt
Recent Corporate Pension Headlines
PRT Litigation Update:
No new pension risk transfer (PRT) litigation was reported in the fourth quarter. The Allegheny Technologies Inc (ATI) PRT case was dismissed during the quarter. Four PRT cases have been dismissed to-date while two motions to dismiss have been denied and four cases await rulings. The ERISA Industry Committee (ERIC) and other retirement industry groups urged dismissal of the Lockheed Martin and other PRT litigation.
The latest data on PRT activity through the third quarter showed an increase relative to the second quarter. Pension buy-ins hit a record high of $4.3 billion during the third quarter as sponsors sought to lock in interest rates and allow flexibility on timing for a buyout.
