U.S. Pension Plan Discount Rate Comparison 2009-2014

September 2016

The SOA is pleased to make available an article comparing the recent historical relationship between pension plan funded status and discount rates used to compute liabilities for funding purposes. The comparison spans years 2009-2014 and covers single employer plans, multiemployer plans, and public plans run by states and large cities.

The author extends special thanks to Eli Greenblum, FSA, EA, FCA, MAAA, Thomas B. Lowman, FSA, EA, FCA, MAAA and Aaron R. Weindling, FSA, CFA, EA, FCA, MAAA, for their volunteer arm’s-length review of this article prior to publication. Any opinions expressed may not reflect their opinions nor that of their employers. Any errors are the author’s, not theirs.

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U.S. Pension Plan Discount Rate Comparison 2009-2014

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Executive Summary

This article compares the recent historical relationship between pension plan funded status and discount rates used to compute liabilities for funding purposes.¹ Comparisons include all three major categories of defined benefit pension plans in the United States: single employer (SE) plans, multiemployer (ME) plans, and state and large city public plans (PP).² Reflection is limited to the question of whether discount rates were driving the differences in funded status, without any attempt to explain why funded status differs. Nor does this article explore the reverse question of whether funded status was driving the choice of discount rates for funding purposes.

Note that discount rates, liabilities and assets computed for other purposes may be determined and reported differently. Presentation of reported funding discount rates and associated values constitutes neither advocacy nor opposition, neither agreement nor disagreement, by the Society of Actuaries (SOA) with these or any other approaches to selecting discount rates and computing liabilities and unfunded liabilities.

Key findings over 2009-2014 include:

• In general, funding discount rates for PP and ME plans were significantly greater than those for SE plans, with PP discount rates having been somewhat greater than ME rates.
• Although the category with the greatest discount rates (PP) was the least well funded, statistical analysis reveals that discount rates were probably not driving the differences in funding levels. While they are not explored in this article, many other factors involved in pension plan funding also differed among and within pension plan categories, including methods for computing unfunded liabilities, overall approaches to plan and risk management, and the way that contributions are determined.

¹For this article, “discount rate” refers to the interest rate used to compute the present value of future benefit payments.
²This article tabulates values reported on publicly available databases, cited at the end of the article.

Questions or Comments?

If you have comments or questions, please send an email to research@soa.org.