SFAS interest rates as of 6/30/2005

[Guest BDZ]

Has anyone gotten any input on the range of acceptable interest and discount rates (particularly from auditors) for SFAS as of June 30, 2005?

Sorry, I didn't think the first post went through.

[Effen]

I have done some at 5.25% and some at 5.5%, but the auditors haven't reviewed them yet.

FWIW, the Moody's Rate was 4.96% on June 30, 2005.

Moody's

[Guest BDZ]

Thanks, Effen. Are these assumptions for plans that pay any or limited single sum distributions? I know we typically lean towards using a lower rate for plans that allow for single sum distributions.

[Effen]

Actually, strangely enough, the plan trying to use the higher rate pays lump sums. The plan using 5.25% does not.

Personally I was recommending 5.25% to both, we will see what the auditors accept. Local auditors tend to give a little more leeway than the national guys.

FWIW, for Plans that pay lump sums and cash balance plans, FASB is considering a position where the minimum PBO is equal to the plan termination liability. This would probably require a discount rate around 4.5%.

[AndyH]

5.25 based upon KPMG comments., 5.50 local auditors.

[ishi]

Effen, I thought they were reviewing using the lump sum amount specifically to determine the ABO for minimum liability purposes. Did I miss something?

Also, does anyone know the likelyhood of this measure being effective for the 12/31/2005 disclosures?

[Effen]

Following is the quote from the FASB:

At the May 11, 2005 meeting, the Board asked the staff to analyze how the accounting for a defined benefit pension plan that provides active participants with the right to receive a lump-sum cash settlement upon termination or retirement might be impacted by changing the measurement of the accumulated benefit obligation (ABO) for purposes of calculating the minimum pension liability. For such a plan, the measure of the ABO for each participant eligible for a lump-sum payment would not be less than that amount.

Technically you are right, they are talking ABO, not PBO, but how reasonable would be be to have an ABO > PBO?

As far as I know, there has been no movement on this issue since around May 2005. Does anyone else know anything?

FASB

[Guest BDZ]

Thank you very much for the feedback.

I've got a couple of additional questions:

1) Is anybody seeing interest/discount rates of 5.6% or higher for plan years ended in June 2005 for ABOs and PBOs?

2) Does anybody consider the composite corporate bond rate now used for determining current liabilities an appropriate source for setting the SFAS interest/discount rates?

Paragraph 44 of SFAS 87 contains the following description of the determination of the discount rate:

Assumed discount rates shall reflect the rates at which the pension benefits could be effectively settled.  It is appropriate in estimating those rates to look to available information about rates implicit in current prices of annuity contracts that could be used to effect settlement of the obligation.

[Effen]

Here are a couple prior discussions that should be helpful

benefitslink

benefitslink 2