There’s a growing consensus among DB plan sponsors in selecting discount rates, reports a study by SEI. According to the firm’s research, there was a 140-basis point range of discount rates used for 2010 pension disclosure—a decrease of 21 basis points in range from 2009.
“This narrowing of the discount rate range points to increased consensus among plan sponsors,” says Jonathan Waite, director, investment management advice and chief actuary for SEI’s institutional group. “Relative to last year’s study, plan sponsors are being more conservative when setting the discount rate, with the high end of the range being more than 65 basis points lower than last year and the low end falling only 47 basis points.”
Based on this analysis, and assuming no change during December, plans with a Dec. 31, 2011 measurement date should consider decreasing their discount rates, says SEI.
The study also shows that 63% of plan sponsors in the study did not lower their return on asset (ROA) assumptions between 2009 and 2010, while 37% did. These results parallel the ROA assumption changes reported in 2010 and indicate that the majority of plan sponsors feel the return assumptions for prior years are still applicable.
A full version of the research can be obtained by emailing seiresearch@seic.com.