KNOWLEDGE CENTER

2011: An Update for Disclosures for 2010

In December 2010, SEI released research on assumptions for ASC 715 (pension accounting) valuation that was based on information available through the end of November 2010. Now that the year has closed, this paper provides a summary update on the research based on end-of-year indices.

The research results that were based on information through November indicated that disclosure discount rates for 2010 should decrease relative to the rates in the 2009 disclosures.  This result assumed that there would be no change in the market index levels during the month of December 2010. 

However, now that 2010 has closed and indices can be updated through December, there are additional changes in long bond yields from December 31, 2009 to December 31, 2010. Table 1-1 of our Research Report (below) shows those updated changes:

Table 1-1 (Updated) What Does This Mean?

 As shown in our December 2010 research paper (although not demonstrated in Table 1-1 above), yields are lower at all durations. Based on this analysis, plans with a December 31st measurement date should consider lowering their discount rate, many in the range of 50 bps.

Plan sponsors generally select discount rates using a method that matches plan cash flows to a yield curve, rather than using an index benchmark.  This will result in significantly different results (e.g., a decrease of 11 to 77 bps) by plan based on the expected projection of benefit payouts specific to that plan.  Therefore, plans must consider any changes in their projected cash flows relative to the prior year and any changes in methodology for making this assumption selection.

Questions

If you are an SEI client and have any additional questions on these changes, please contact your SEI Service Representative or feel free to contact Jon Waite at jbwaite@seic.com or (610) 676- 3493.  All other inquiries can be sent to either Jon or seiresearch@seic.com.     

This research should be used for educational purposes only. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events, or a guarantee of future results.  The information is not intended to provide actuarial or accounting advice. Please consult with your plan advisor for more information before making any investment decisions. ©2011 SEI.

© SEI Investments Developments, Inc. All rights reserved. Content originally published at www.seic.com.