FASB - segment rates?

[Mister Met]

I've seen someone using the PPA funding 3-segment rates for FASB accounting purposes. Is this appropriate? I thought FASB rates are supposed to be spot rates, but if the PPA funding rates are a 24-month average are they then inappropriate for FASB purposes?

[david rigby]

Ultimately, the plan sponsor must choose the discount rate(s) for SFAS87/88/106/158 purposes. Frequently, the actuary is asked for a recommendation and/or the auditor blesses the choice. The IRS segment rates might be reasonable, or might produce a result similar to another reasonable rate. The 24-month smoothing aspect does not automatically mean such rates are (or are not) reasonable. [bTW, PBGC segment rates are similar to IRS segment rates, without 24-month smoothing.]

Many auditors will focus on whether the method to choose a rate is objective and a reasonable reflection of market value. Using multiple rates does not invalidate the process.

Possibly, some prior discussion might be relevant to you:

http://benefitslink.com/boards/index.php?showtopic=46127

[Andy the Actuary]

I've seen someone using the PPA funding 3-segment rates for FASB accounting purposes. Is this appropriate? I thought FASB rates are supposed to be spot rates, but if the PPA funding rates are a 24-month average are they then inappropriate for FASB purposes?

Generally, what is appropriate is whatever the auditor will issue a favorable opinion. That said, how can the 24 month average represent settlement on the measurement date. Worse would be if funding using a look back month, like September. So, now you would be using a 24-month average that doesn't relate to the measurement date. In an earlier post I provided an example of a consulting firm who nevertheless advocated this position.

I believe your answer is different if you're simply applying the year-end IRS yield curve which does not embody 24-month averaging.