{"id":1237,"date":"2013-09-11T07:58:53","date_gmt":"2013-09-11T12:58:53","guid":{"rendered":"http:\/\/pensionblog.com\/?p=1237"},"modified":"2013-09-11T07:58:53","modified_gmt":"2013-09-11T12:58:53","slug":"pension-discount-rates-september-2013-preview","status":"publish","type":"post","link":"https:\/\/viaactuarial.com\/2013\/09\/11\/pension-discount-rates-september-2013-preview\/","title":{"rendered":"Pension Discount Rates \u2013 September 2013 Preview"},"content":{"rendered":"

After several years of painfully-low pension discount rates, we\u2019ve seen a modest rebound in 2013. Using the Citigroup Pension Liability Index (CPLI) and Citigroup Pension Discount Curve (CPDC) as proxies, pension accounting discount rates are up by about 80 basis points so far this year.<\/p>\n

This is great news for pension plan sponsors, especially if rates continue their upward trend. Add in strong year-to-date equity returns, and we may finally see a reduction in unfunded pension balance sheet liability for fiscal year-end 2013.<\/p>\n

Analysis<\/span><\/strong>
\nIn the chart below we compare the CPDC at four different measurement dates (12\/31 2010 to 2012, and 8\/31\/2013). We also highlight the CPLI at each measurement date. The CPLI can be thought of as the average discount rate produced by the curve for an average pension plan.<\/p>\n

\"Citigroup<\/a><\/p>\n

Rates have increased at all points along the spectrum since 12\/31\/2012. The orange arrows highlight the trend in yield curve movement. The increase in rates all along the yield curve means that all types of plans (e.g., frozen and open) should benefit if interest rates continue to increase through year-end.<\/p>\n

Net Effect on Balance Sheet Liability<\/span><\/strong>
\nMany plans had strong investment returns during the first half of the year, with some fluctuations over the past couple of months. If those early investment gains can be preserved (or increased) until year-end, then this will further improve the pension funded status (assets minus liabilities). Depending on the starting funded status, the change in pension liabilities and assets can have a leveraging effect on the reported balance sheet liability.<\/p>\n

Conclusions<\/span><\/b>
\nSo, what should plan sponsors be considering over the next few months as we approach year-end? Here are a few ideas.<\/p>\n