Interest Rates Boost Pension Funding in September

The funded status of the 100 largest corporate defined benefit plans in the U.S. rose to 114.5% in September, up from 112.2% in August, according to Milliman Inc.’s Pension Funding Index. A 47-basis-point increase in benchmark corporate bond interest rates during the month to 6.47% resulted in a $54 billion reduction in pension liabilities, helping to offset a negative 2.21% investment return.

Discount rates have increased by more than 100 bps over the past year and have reached levels not seen since May 2009, when the rate was 6.53%, Milliman reported.

The market value of PFI plan assets decreased by $35 billion in September, one of the largest market losses of the year that trailed only March’s loss of 3.19%. Milliman’s monthly expected return for 2026 is 0.53%.

“At March 31, plans were about where they were at the end of [2025],” says Brian Donohue, a partner in October Three Consulting. However, “since then, other than a small decline in June, every month pension finances are improving, improving, improving.”

The Federal Reserve Open Market Committee raised its overnight lending rate by 25 bps on September 16 to a new range of 3.75% to 4.00%. It was the first increase in that rate in more than three years, sending bond yields higher across the spectrum.

A Story of Higher Interest Rates

Zorast Wadia, the author of Milliman’s PFI and a principal in the firm, says the reasons behind the funded status improvements have varied each month. While interest rates were to thank for a funding status boost in September, stronger asset returns offset interest rates that dropped in August. September’s trajectory looked more like July’s, when returns fell, but a 41-bps increase in interest rates swelled the funded status.

“The increase in interest rates [helps] all pension plans, whereas when it’s an increase in the stock market, that tends to work better for plans that are well-funded,” October Three’s Donohue says.

Both model plans tracked by October Three gained ground last month due to the higher interest rates. Plan A, a traditional 60/40 equity/bond allocation portfolio, improved by more than 2 percentage points, while the more conservative Plan B, comprised of 80% bonds, gained a fraction of 1 percentage point. Plan A is now up 13 percentage points for the year, and Plan B remains up 3 percentage points through the first three quarters of 2026.

Marsh reported that the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased by 1 percentage point in September to 113%, again due to an increase in discount rates slightly offset by a decrease in equity markets. Plans’ aggregate surplus grew by $6 billion in September to reach $181 billion.

Gallagher reported that interest rates, measured by the FTSE Pension Liability Index, experienced a “meaningful increase” in September, up 0.42 percentage points to reach 6.54%. Discount rates have been at or above 5.5% for each of the past 10 months and are 1.09 percentage points higher than they were one year ago, the firm stated in its September U.S. Pension Briefing.

MetLife Investment Management estimated that the average U.S. corporate pension funded status decreased slightly in September to 109.7%, down 0.3 percentage points from the end of August. MetLife’s estimate was the only one among consulting firms in which pension funding fell.

“Pension assets lost value in September due mainly to rising interest rates,” said Stephen Mullin, MetLife Investment Management’s head of investment grade strategies, in a statement. “As rates rose, bonds lost value, and bonds represent the majority of assets in the average corporate pension.”

L&G Asset Management, America estimated that pension funding increased in September to 112.3% from 111.8% in August. Equities fell over the month overall, with global equities—represented by the MSCI All-Country World Total Gross Index—down 1.1%, and the S&P 500 down 0.4%. Plan discount rates were estimated to have increased 51 bps over the month due to a 47-bps rise in the Treasury component and a 4-bps widening in the credit component.

Aon, which tracks the funded status of pension plans of companies in the S&P 500, estimated plans were 109.8% funded on September 30, up from 108.6% on August 31.

Wilshire’s pension finance monitor estimated that the aggregate corporate pension funding ratio increased by 1.7 percentage points over September, ending the month and quarter at 113.6%. The change resulted from a 4.6 percentage point decrease in liability value, which was partially offset by a 3.2 percentage point decrease in asset value.