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Off Their Deathbeds, DB Plans are Hearing More Good News--But for How Long?

After riding out a rough quarter, defined benefit (DB) plans received some good news in the form of a projected increase in the discount rate used to determine liabilities and expenses. Year-end 2007 disclosure discount rates should increase by at least 25 to 50 basis points relative to the rates...

By Staff Writer | Updated on January 08, 2008

After riding out a rough quarter, defined benefit (DB) plans received some good news in the form of a projected increase in the discount rate used to determine liabilities and expenses. Year-end 2007 disclosure discount rates should increase by at least 25 to 50 basis points relative to the rates in the 2006 disclosures, according to SEI Investments Co. The 25-to-50 basis point projected increase is based on SEI’s analysis of the performance of indices of AA and AAA-rated corporate bonds during the first 11 months of 2007. Under FAS 87, the discount rate must be based on such indices.

Discount rates, which plans are required to disclose in footnotes to financial statements, are inversely proportional to a plan’s liabilities and expenses; an increase in the 2007 discount rate, for example, means that plans can expect to report lower liabilities for fiscal 2007. And because the rate is used to determine the following year’s expenses, a hike in the 2007 discount rate means DB plans can expect to report lower expenses for the 2008 fiscal year.

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