Marrying Investment Policy with Funding Policy in DB Plans

One of my earliest defined benefit (DB) clients, in the early 2000s when actuaries still had broad discretion over interest rate assumptions, was using 8 percent as the discount rate for liabilities. As a quick explanation of what this means, an 8 percent assumption implies a dramatically cheaper funding cost than, say, a 6 percent assumption, because it costs less to accumulate assets over time if you earn more interest. As it turned out in the “lost” decade, anything over 6 percent was too high. Read full article…