Companies that operate traditional pension plans felt the pinch last year when low interest rates combined with mediocre equity returns to erode plan funding. That pinch is likely to continue this year. SEI, an asset management and investment processing company, predicts plan sponsors will lower the discount rate they use to measure their future liabilities, a move that means many will end up needing to contribute more to their plans.
A recent study by SEI suggests that in the coming year, plan sponsors will use discount rates that are 70 to 85 basis points lower than last year’s. The discount rate is used to measure a defined-benefit pension plan’s future liabilities.