The discount rates used by Canadian pension plans have declined for the fourth consecutive year.
Morneau Shepell’s Economic Assumptions in Accounting for Pension and Other Post-retirement Benefits survey finds the median discount rate was 4.15% as at Dec. 31, 2012, compared with 4.60% a year earlier.
Roughly 95% of companies surveyed reduced their discount rate in 2012, the median decrease being 50 basis points.
Over the four-year period from 2009 to 2012, the median discount rate decreased by a total of 260 basis points.
The median expected long-term rate of return on plan assets is 6.50%, a decrease of 25 basis points from the median rate in the Dec. 31, 2011, survey. In recent years, there has been a very slow but steady decline in this assumption. The range in this assumption used is similar to last year’s.
Approximately 68% of the companies used a long-term rate of return between 6% and 7% as at Dec. 31, 2012, whereas 72% of the companies used an assumption between 6.25% and 7.25% at the end of last year.