Corporate defined benefit plan funded levels decreased during the first quarter of 2025. The primary drivers were lower discount rates that increased the liability and negative returns in return-seeking asset classes. A typical return-driven plan had a 2.5% decrease in its funded ratio, while a typical liability-driven plan observed a 0.4% decrease. Return-driven plans with higher equity allocations saw a larger decrease in funded status due to the larger impact of negative equity returns on the assets.
Chart 1: Funded Ratio Change: Return-Driven Plan1
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Chart 2: Funded Ratio Change: Liability-Driven Plan1
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Treasury Rates
Treasury rates decreased at all points along the curve and had a negative impact on funded status.
During the quarter, the Treasury curve decreased, with overall steepening across the curve. The short end of the curve decreased approximately 17-44 basis points (bps), while the long end of the curve decreased approximately 17-35 bps. Driving the decreased yields was the market’s focus on growth concerns. The Federal Reserve maintained the federal funds rate of 4.25% to 4.50% during the quarter. In isolation, the decrease in Treasury yields increased the liability and caused a decrease in funded ratios for pension plans.
Chart 3: Treasury Curve2
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Credit Spreads
Credit spreads had a positive impact on funded status of both liability-driven plans and return-seeking plans.
Widening credit spreads increased the discount rates and decreased liabilities. Intermediate duration credit spreads widened 10 bps while long duration credit spreads widened 17 bps. The overall increase in spreads was driven by a lower appetite for risk. On a net basis, considering decreasing Treasury yields, the total corporate bond discount rate for pensions decreased approximately 16 bps and increased plan liabilities.
Chart 4: Credit Spreads2
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Equities
Equity market performance had a negative impact on funded status.
Overall negative performance in global equity markets driven by the downturn in the United States hurt funded statuses this quarter. Market challenges such as new tariffs on U.S. imports
drove U.S. equity markets down into correction territory, causing overall equity returns to be negative. U.S. large cap stocks outperformed U.S. small cap stocks with returns of approximately -4.27% and -9.48%, respectively, while International equities returned around 4.59%.
Chart 5: Equity Index Total Returns2
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Maintaining balance during uncertainty
With larger than expected tariffs and retaliation from China as well as potential retaliation from other international trade partners, the market has experienced significant volatility with equities and long-term Treasury yields. Return-driven plans with higher equity allocations saw a larger decrease in funded status due to the larger impact of negative equity returns on the assets. Within the first few days of April 2025, a sample return-driven plan funded ratio decreased approximately 5-6%, while a liability-driven plan has decreased approximately 1.2%.1 The primary reason was negative equity returns, partially offset by widening credit spreads that lowered the liability.
Return-driven plans may continue to see large swings in funded status if uncertainty persists. Plans that have made progress on their liability driven investment strategy, using a custom liability hedging in conjunction with a glidepath strategy, are well positioned to weather any market environment with a disciplined, proactive approach to managing funded status volatility.
1Assumptions
- Data as of 4/15/2025, Source: PNC.
- The funded ratio changes are for generic plans with allocation and liability profiles specified below. Results are market driven and do not incorporate any plan-specific effects, such as benefit payments, expenses, benefit accruals, or plan contributions. Funded ratio changes are sensitive to the beginning of the period funded ratio.
- A return-driven plan is a pension plan with an asset allocation commonly associated with an absolute return-objective and has a high allocation to return-seeking assets (public equity in this case) and typically has high funded status volatility. Assumed asset allocation is 70% MSCI All Country World, 30% Bloomberg Aggregate.
- A liability driven plan is one that is well along its path in a liability-centric approach to investing and has a large allocation to long-duration bonds to help reduce funded status volatility. Assumed asset allocation is 20% MSCI All Country World, 64% Bloomberg Long Credit, 16% Bloomberg Long Government.
- Liability profile is based on BAML Mature/Average U.S. Pension Plan AAA-A Corp Indexes with average duration of 13.0 years.
2Data as of 3/31/2025, Source FactSet®. FactSet® is a registered trademark of FactSet Research Systems Inc. and its affiliates.
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Accessible Version of Charts
Chart 1: Funded Ratio Change: Return-Driven Plan
| Return-Driven Plan | Funded Ratio Change |
| Beginning of Quarter | 100.0% |
| Change due to Treasury Rates | -3.1% |
| Change Due to Credit Spreads | 1.5% |
| Change Due to Equities | -0.9% |
| End of Quarter | 97.5% |
Chart 2: Funded Ratio Change: Liability-Driven Plan
| Liability-Driven Plan | Funded Ratio Change |
| Beginning of Quarter | 100% |
| Change due to Treasury Rates | -0.5% |
| Change Due to Credit Spreads | 0.4% |
| Change Due to Equities | -0.3% |
| End of Quarter | 99.6% |
Maturity |
12/31/24 |
3/31/25 |
Change (right axis) |
1 |
4.23% |
4.06% |
-0.17 |
3 |
4.31% |
3.91% |
-0.40 |
5 |
4.40% |
3.97% |
-0.43 |
7 |
4.48% |
4.08% |
-0.40 |
9 |
4.55% |
4.19% |
-0.36 |
11 |
4.62% |
4.31% |
-0.31 |
13 |
4.69% |
4.42% |
-0.27 |
15 |
4.75% |
4.54% |
-0.21 |
17 |
4.81% |
4.64% |
-0.17 |
19 |
4.86% |
4.74% |
-0.12 |
21 |
4.90% |
4.81% |
-0.09 |
23 |
4.91% |
4.84% |
-0.07 |
25 |
4.90% |
4.82% |
-0.08 |
27 |
4.87% |
4.76% |
-0.11 |
29 |
4.81% |
4.65% |
-0.16 |
Date |
Intermediate Credit Option-Adjusted (OAS) |
Long Credit Option-Adjusted Spread (OAS) |
9/30/24 |
0.66 |
1.00 |
10/31/24 |
0.63 |
1.01 |
11/30/24 |
0.70 |
1.10 |
12/31/24 |
0.76 |
1.17 |
Chart 5: Equity Index Total Returns
| Index | Date | Percent |
| Russell 3000 | 12/31/2024 | 0.03% |
| 1/31/2025 | 3.13% | |
| 2/28/2025 | 1.12% | |
| 3/31/2025 | -4.81% | |
| MSCI ACWI ex USA | 12/312024 | 0.03% |
| 1/31/2025 | 4.03% | |
| 2/28/2025 | 5.47% | |
| 3/31/2025 | 5.23% |
