December 2010 FASB Discount Rates

[Andy the Actuary]

What discount rate ranges are you seeing? Are you seeing difference between those used for publicly trade companies and those used for privately held industry?

[david rigby]

So far, 5.75% to 6.0%.

[dmb]

So far, 5.75% to 6.0%.

I just did a discount rate analysis for a non profit organization that pays lump sums and purchases annuities for retirees (does not pay monthly benefits from plan) and came up with 5.1%. Analysis was based on Citigroup 12/31/10 Pension Discount Rate Curve. Rates are very low in the short term.

[Andy the Actuary]

So far, 5.75% to 6.0%.

I just did a discount rate analysis for a non profit organization that pays lump sums and purchases annuities for retirees (does not pay monthly benefits from plan) and came up with 5.1%. Analysis was based on Citigroup 12/31/10 Pension Discount Rate Curve. Rates are very low in the short term.

Interesting. Now, if the Plan did not pay lump sums, you would use a higher discount rate. But you have determined the rate that liabilities can be effectively settled, so why is it appropriate to use a higher rate? And we open the envelope and find the answer written, "I dunno."

[david rigby]

Analysis was based on Citigroup 12/31/10 Pension Discount Rate Curve.

IMHO, judgment call. Remember that the Citigroup curve differs from the IRS curve in two primary respects:

- the IRS curve goes to 100 years, while the Citi curve goes to 30 years,

- the IRS curve is based on bond rates in the top 3 categories, while the Citi curve is based on bond rates in the top 2 categories (corrections welcome if my summary is not valid.)

[Effen]

Also, apparently Citigroup changed their methodology. The new methodology seems to be producing discount rates that are slightly lower than the old methodology. I'm seeing the method changes could result in decreases of 5 - 10 bps.

I other words, using the old methodology I might end up with a rate of 5.45% and 5.40% on the new method.

I tend to use the Citigroup curve and I'm seeing discount rates close to 5.50% for plans that don't pay lump sums. For plans where the expected payout is a lump sum, I'm getting something around 5.0% or less.