Year‐end strategies for pension & OPEB obligations and expense

Abstract

The potential impact of the 1998 decline in long–term interest rates along with the July to September decline in the equity markets reminded us that employers should focus on the assumptions, accounting methods, and other strategies being used for pension and other postretirement benefits (OPEBs) that drive obligations and expense under FAS's 87 and 106. Employers will need to assess their discount rates and consider reducing them while also considering changes to other assumptions for salary increases, expected return on plan assets, and health care cost trends. Contribution and plan design strategies should be assessed as well. This article highlights the important implications of changing year-end assumptions and other related issues, including the impact on funding and Pension Benefit Guarantee Corporation (PBGC) premiums, and provides employers with an action plan. Even if interest rates rise and the equity markets rebound, the strategies discussed in this article should be considered as part of an effective management plan to deal with pension and OPEB funding, obligations and expense. ©1999 John Wiley & Sons, Inc.