Quarterly Annuity Update

• $10.7 Billion of Q1/2 2025 buy-out sales is 54% lower than same period in 2024
• An additional $0.4 Billion in buy-in sales YTD 2025 is down 83% from same period in 2024

• Total of 247 new buy-out contracts in Q1/2 2025; Down 24% from Q1/2 2024 volume of 327 contracts
• Also 5 buy-in contracts in Q1/2 2025; same number as in Q1/2 2024

Plan sponsors are evaluating carriers on factors such as carrier financial strength, reputation, duration in the industry and participant service capabilities

Growing number of sponsors are contracting with carriers who are not the lowest bidder

EQUITIES ROSE IN Q3 2025

INTEREST RATES FALLING IN Q3 2025

• U.S. Large Cap (S&P 500) increasing 8.1%
• U.S. Small/Mid Cap (Russell 2000) increasing 12.4%
• International (MSCI ACWI Ex US) increasing 7.0%

• Treasury yields decreasing
• 2-Year decreasing 12bp from 3.72% to 3.60%
• 10-Year decreasing 8bp from 4.24% to 4.16%
• 30-Year decreasing 5bp from 4.78% to 4.73%

Strong equity market gains in Q3 2025 positively impact defined benefit (DB) pension plans by boosting asset values, which can improve funded status and reduce future contribution requirements. With U.S. large caps up 8.1%, small/mid caps up 12.4%, and international equities up 7.0%, plans with diversified equity exposure likely saw meaningful growth. This may also create opportunities for de-risking strategies, such as pension risk transfers, and can lower pension expense on corporate financial statements.

Falling interest rates in Q3 2025 negatively impact defined benefit (DB) pension plans by increasing the present value of future liabilities. As Treasury yields declined—2-Year by 12 basis points, 10-Year by 8 basis points, and 30-Year by 5 basis points—discount rates used to value pension obligations likely fell as well. This leads to higher reported liabilities, which can reduce funded status even if plan assets performed well. Sponsors may face increased balance sheet volatility and higher pension expense, especially if asset growth doesn’t offset the liability increase.

PENSION PLAN FUNDED STATUS IMPROVED IN Q3 2025

CREDIT SPREADS HAVE NARROWED

• Plan assets, 60% equity/40% fixed income allocation, increasing 6.0%
• 40% S&P 500, 10% Russell 2000, 10% MSCI ACWI ex. U.S., 40% Bloomberg U.S. Aggregate Bond"
• Plan liabilities with a 13 - 14 duration increasing 3.1%
• Excess return of assets over liabilities of 286bp

• FTSE Pension Liability Index decreasing 13bp from 5.58% to 5.45%
• FTSE Pension Liability Index - Interm. decreasing 13bp from 5.46% to 5.33%

Improved funded status in Q3 2025 reflects strong asset performance relative to liability growth. A typical pension plan with a 60/40 equity-to-fixed income allocation saw assets increase by 6.0%, driven by gains across U.S. and international equities and bonds. Meanwhile, liabilities—based on a duration of 13–14 years—rose 3.1% due to falling interest rates. The excess asset return of 286 basis points over liabilities strengthens the plan’s funded status, potentially reducing future contribution needs and creating opportunities for de-risking or pension risk transfer strategies.

Narrowing credit spreads in Q3 2025, reflected by a 13-basis point drop in the FTSE Pension Liability Index (from 5.58% to 5.45%) and its intermediate counterpart (from 5.46% to 5.33%), increase the present value of pension liabilities. For defined benefit (DB) plans, this means higher liability valuations, which can negatively affect funded status if asset growth doesn’t keep pace. Sponsors may see increased pension expense and greater balance sheet volatility, especially for plans using corporate bond yields to discount liabilities.

PENSION LIABILITY INDICES

PENSION LIABILITY CURVE

This curve compares pension liabilities across different maturities (6 months to 30 years) at two points in time: March and June 2023. It shows how liabilities shift with changes in the yield curve, helping plan sponsors understand the timing and magnitude of future obligations.

INDEX MODEL LIABILITIES

FUNDED STATUS SENSITIVITY

This chart helps plan sponsors understand how interest rate and market changes affect liabilities and funding levels which is critical for risk management and strategic planning. It shows how a pension plan’s funded status reacts to both shifts in the yield curve (which impacts both the fixed income portion of the portfolio and the plan liability), ranging from -2.0% to +2.0% and changes in equities, ranging from -20% to +20%.

Blue cells indicate improved funding (typically from rising rates), while gray cells show deterioration (from falling rates). For example, if equities remain constant, but the yield curve shifts +2%, the change in the fixed income portion of the portfolio and the plan liability will increase the funded status from 100% to 116%. If the yield curve remains constant, but equities improve 5%, the funded status would improve from 100% to 103%.