Pension Accounting Research Series: ASC 715 Discount Rate Selections

January 24, 2019

2019: Disclosure Ranges for 2018

Now that 2018 has closed and indices are updated through year-end, there are changes in long bond yields from the close of 2017 to the close of 2018. 

Yields  are higher at all durations, ranging from over 100 bps higher below 2 years to just 37 bps higher at 30 years. Based on this analysis, pension plan sponsors can anticipate an increase in their effective PBO discount rate due to higher yields of about 55 BPS on average. 

The figure below shows those changes. 

Figure 1.1 Change in Yields 2017 to 2018 Year-End

Figure 1.1 Changes in Yields, Years
Bond Index 12/2017 Yield 12/2018 Yield Change (BPS)
Barclays AA Long Credit 3.60 4.17 +57
Merrill Lynch AA 15+ Corporate 3.63 4.22 +59
1FTSE Pension Liability Index 3.60 4.22 +62
2FTSE Pension Liability Index - Intermediate 3.48 4.14 +63

 

If you have questions about setting your discount rate or how the 2018 long bond yields can impact your liability, contact us

Legal Note

Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company.

1 Financial Times Stock Exchange (FTSE) Pension Liability Index has a weighted average life (WAL) of 26.9 years and the index represents a fully-open plan.
2 Financial Times Stock Exchange (FTSE) Pension Liability Index Intermediate has a weighted average life (WAL) of 21.2 years and the index represents a plan that is closed to new entrants.