Volume 2, No. 11

 

A Reckoning On Rates: Are Pension Plan Assumptions Too High?:  Recent press reports have focused on an SEC drive to inject lower - and more realistic- discount rates into corporate pension plans. The consequences are greater pension liabilities. However, what's being overlooked is the effect that lowered asset rate-of-return assumptions can have on pension expense: their impact on current earnings may be far greater than the effects of lowered discount rates. Furthermore, there are reasons to believe that plan asset return assumptions might drop. A simple methodology is developed here for testing the reasonableness of long-term rate-of-return assumptions.

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