SEI Finds Narrowing of Range of Discount Rates Used

According to the analysis of a database of 686 plan sponsors, the research shows a 140 basis point range of discount rates used for 2010 pension disclosure—a 21 basis point decrease in range from 2009. The results of the study provide companies with guidance for setting the discount rate and return on asset (ROA) assumptions that pension plan sponsors will use for 2011 year-end disclosures.  

“This narrowing of the discount rate range points to increased consensus among plan sponsors in selecting this assumption,” said 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 (bps) lower than last year and the low end falling only 47 bps.”  

SEI’s research outlines how some plan sponsors and auditors are interpreting the events in the current marketplace. Based on this analysis, and assuming no change during December 2011, plans with a December 31 measurement date should consider decreasing their discount rates.   

The study also shows more than half (63%) of plan sponsors in the database did not lower their ROA between 2009 and 2010, while just over one-third (37%) did. These results parallel the ROA assumption changes reported in 2010 and indicate the majority of plan sponsors feel the return assumptions for prior years are still applicable.  

Data for the research is derived from the 2010 SEI Plan Sponsor Accounting Database, which consists of data from Standard & Poor’s Institutional Market Services database, as well as proprietary analysis created by SEI’s Institutional Group.