FAS87 Discount Rate for 12/31/06 ?

[tuni88]

It seems last year on 12/31/05 the least-likely-to-be-challenged discount rate might have been 5.50%. What do you pension actuaries out there think will be the least challenged discount rate for 12/31/06?

[david rigby]

Some historical rates from Moody's:

http://benefitslink.com/boards/index.php?s...st&p=141944

I've seen a range of rates, from 5.5% to 6.25%. Both ends of that range are unusual, with 5.75-6.0% more common.

However, any prevailing external rate is only a proxy. A more precise method is to measure each plan's liability duration and compare to an external table, such as the one published by Citicorp. Still more precise is to perform cashflow matching of the plan's expected payments, and determine the discount rate by matching high quality bonds to the payment stream(s).