FASB & Moody's

[Andy the Actuary]

A financial institution plan has use a 9/30 measurement date for its 12/31 fiscal year because there is certain reporting they must complete early in January. We have used a discount rate based up Moody's Aa indexes. This has worked fine until FASB mandated using 12/31.

If we can use a rate say as of 12/24, then the work (spreadsheet) can be completed and then it's simply plopping in the 12/31 asset value. I sense that the accounts will not get excited if 12/24 is used rather than 12/31.

Question: Can anyone point to were I might find -- preferably on-line -- Moody's daily Aa rates?

The Aaa rates appear to be readily available but the Aa rates are not.

[masteff]

Nothing like a good websearch challenge.

I found this old thread which put me on the right track to...

http://www.soa.org/professional-interests/...es-pension.aspx

It has a link for Moody's Corporate Bonds (Aa, month end close). (Hmm, in properties it says it's AAA rates, so you might want to compare it to some historical data to verify that it's really the Aa rates.)

(Oh, and I know you preferred the daily rates, but couldn't find a link for those yet.)

[Andy the Actuary]

Thank you.

You will be pleased to learn that these are not published regularly in the WSJ. Apparently, you need to be a subscriber to Moody's to obtain this information.

I know that Moody's Aa is not the only index upon which to base FASB discount rates and I would welcome other suggestions.

andy t.a.

[Effen]

Just to kick that old dead horse, FASB wants you to use the yield curve, not the Moodys' Aa rates. Historically we have looked at the movement in the Aa rate to help set the discount rates as well, but more recently, we have adopted FASB's preferred method. It is actually pretty simple - you just match your expected benefit payments with the yield curve (available on the SOA site), then solve for the composite rate that produces an equal value. The yield curve method seems to be producing higher discount rates currently - usually 6.25 - 6.50 for 12/31/07 valuations.

I have been thinking more about applying the PPA interest & mortality to my FASB calculations as well. If the PPA rates are supose to more accurately reflect true market conditions, why not just use the same assumptions for both funding and FASB? It seems kind of obvious, yet no one else I have talked to seems to be considering it.

[Andy the Actuary]

Effen, you're suggestion to use the yield curve makes sense unless you're a little gnat like me who uses spreadsheets and has a difficult enough time making a go of it using segmented rates.

[Guest amadeus]

Andy,

Approximate the modified duration of your plan's liabilities as follows:

[(PBO at discount rate + 1%)-(PBO at discount rate -1%)/[2(PBO at discount rate).01]

Round the answer to the nearest .5 year and look up the appropriate spot rate on the Citigroup liability curve.

We've used this method for plans where the auditors are PwC and Deloitte and they've accepted it.

[Guest amadeus]

Sorry, I left out one minor detail. This is for the current year disclosure calculation. The discount rate you start with is the rate used for the prior year's disclosure calculation (and therefor the current year's expense).

[Effen]

Andy using a spread sheet to determine the discount rate based on the yield curve isn't difficult or time consuming, assuming you have the expected future payment stream, which may be the problem if you are using spreadsheets.

Then again, I don't see how you can run PPA Funding liabilities without being able to project expected future payment streams. You need to know your expected future payments in order to know which of the 3 segment rates to apply.

[Andy the Actuary]

Not too difficult if you assume no pre-retirement decrements. More elaborate if you do.

[david rigby]

You will be pleased to learn that these are not published regularly in the WSJ. Apparently, you need to be a subscriber to Moody's to obtain this information.

Not quite. Go to http://www.moodys.com/dailyyields. Daily access, but no history. It changes every business day around 10:30 am (ET).

[Andy the Actuary]

David, thank you. I had previously spent a month on that website with little success. So, if you act quickly, you can get the rate. This means don't start your New Year's partying too soon!