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Guest Edward McElroy

Reasonable Actuarial Assumptions

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Guest Edward McElroy

Is anyone familiar with any authority after the Citrus Valley Estates, Inc. case that concluded that interest rate assumptions less than 5% were reasonable? I'm looking at a situation where a 3% rate was used with a NRA of 45. Trying to persuade IRS to accept 4% interest rate. Thanks. Ed

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Ed, I am not familiar with that situation, but i do have 2 cents to contribute. I am an actuary, for background.

It is my opinion that the enforcement of "reasonable" definitions of actuarial assumptions is ultimately up to the "pension community", consisting primarily (in my opinion) of plan sponsors and consultants.

It would be a very long and difficult stretch to this commenter to include 3% or 4% in that definition. But, to be fair, you did not specify what the purpose of the rate is: funding, actuarial equivalence, etc. although the answer to that question will probably not matter. Comments anyone?

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I agree with pax, "reasonable" is what we as actuaries agree is reasonable for a given situation.

However, I've not seen a case in which I could justify 3% or 4% as reasonable. It is not impossible for 3% or 4% to be reasonable, just unlikely given the recent historical and expected future rates.

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