SEI Forecasts 2005 DB Discount Rate

December 13, 2005 ( - Defined benefit plan sponsors will likely end up using a discount rate of between 5.75% and 6% for their 2005 disclosures required by Financial Accounting Standards No. 87 (FAS 87).

SEI Investments said in a news announcement and release of a research paper that 5.75%-6.25% was the range used in 2004 plan disclosures by 90% of the 900+ plan sponsor clients in its 2005 SEI Plan Sponsor Accounting Database.The 50-basis point range of discount rates suggests diversity among companies in liability structure, investment philosophy and willingness to be aggressive when setting rates, according to SEI. A more reasonable range of rates from the 2004 disclosure was between 5.75% and 6%, which was used by half of the companies in the database.

Seven percent of plan sponsors decreased their 2004 discount rate by more than 50 basis points, SEI said.

FAS 87 requires plan sponsors to disclose in their annual report pension footnote the discount rate they intend to use when valuing their plan’s accounting liabilities, as well as to disclose their projected return on assets (ROA).

SEI said that of the plans in its database, the discount rate from the 2003 disclosure to 2004 disclosure was down 25 basis points or less for 43% of plans, between 26 and 50 basis points for 36% of plans, was unchanged for 8% of plans and was down by more than 50 basis points for 7% of the plans (See   SEI Recommends FAS 87 2004 Disclosures).     The discount rate increased between 2003 and 2004 for 6% of the plans.

Turning to return on assets figures, SEI said that, of the 973 plan sponsors reporting ROA assumptions, half of them had ROAs between 8% and 8.75%, unchanged from the analysis of 2003. Some 90% of the plan sponsors had ROAs between 6.75% and 9%, also very similar to a year earlier.

The SEI database used in the research consists of data from Standard & Poor’s Institutional Market Services database as well as analysis by the SEI Retirement Solutions and Advisory Team.

For a copy of the study, write to