Pension discount rate requires a named plan, population, date, and evidence owner. The pension discount rate measures the present value of expected benefit cash flows. Support should address the measurement date, cash-flow timing, duration, currency, and the applicable high-quality instrument evidence.
Apply it
An actuary may report that lowering the rate by 50 basis points raises PBO from $20 million to $20.9 million. That conditional result does not choose the booked rate.
Common mistake
Do not assume that the pension discount rate is the plan's expected investment return. The discount rate measures the obligation; the expected return rate is a separate plan-asset assumption. That error would mix an obligation measurement assumption with an asset-return assumption.
Keep the boundary clear
Do not use the expected asset-return rate as the discount rate. The two assumptions serve different models and use different evidence.
Authority
Read ASC 715-30-35-43 for the basis for pension discount rates.
Put the concept to work
Apply this concept
- Explain and apply pension discount rate within a reconciled employer benefit-plan workpaper using supplied authoritative and actuarial facts.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Pension actuarial assumption — Apply
To apply this concept: Required. This prior concept supplies the terms, date, or measurement needed here.
Lessons
Worked examples and cases
Practice
Common mistaken ideas
Sources
Standard references
Broader topics
Related concepts
Use this idea next
- Defined benefit sensitivity analysis — Apply
Required level here: apply. Required. This prior concept supplies the terms, date, or measurement needed here.