Companies that operate traditional pension plans felt the pinchlast year when low interest rates combined with mediocre equityreturns to erode plan funding. That pinch is likely to continuethis year. SEI, an asset management and investment processingcompany, predicts plan sponsors will lower the discount rate theyuse to measure their future liabilities, a move that means manywill end up needing to contribute more to their plans.

A recent study by SEI suggests that in the coming year, plansponsors will use discount rates that are 70 to 85 basis pointslower than last year's. The discount rate is used to measure adefined-benefit pension plan's future liabilities.

Jon Waite, director of investment management advice and chiefactuary of the institutional group at Oaks, Pa.-based SEI, says thechange in plan sponsors' discount rates reflects the change in bondyields in the past year. “We saw yield curves overall drop about 50basis points, and what we're seeing is that's following through onthe various rates they're selecting.”

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Susan Kelly

Susan Kelly is a business journalist who has written for Treasury & Risk, FierceCFO, Global Finance, Financial Week, Bridge News and The Bond Buyer.