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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
from Spencer’s Benefits Reports: The funded status of defined benefit pension plans sponsored by companies in the Fortune 1000 improved in 2009 while modest changes were made in asset allocations, discount rates, salary assumptions, and expected rates of return according to the 23rd annual survey by Towers Watson entitled, Accounting for Pensions and Other Postretirement Benefits, 2010. The survey studied pension and postretirement benefit information from 576 of the Fortune 1000 companies that sponsored such plans and reported their obligations for fiscal years ending after September 2009.
The average funded ratio on a projected benefit obligation (PBO) basis for fiscal year ending (FYE) 2009 was 77%, compared with 71% for FYE 2008. At the end of 2009, the survey found that 31% of the companies had funded ratios on a PBO basis of less than 70%, which is an improvement from 56% at the end of 2008. The average funded ratio on the accumulated benefit obligation (ABO) was 83% for FYE 2009, compared with 75% in FYE 2008.
Positive investment returns were realized by 96% of the companies in FYE 2009, with an average actual annual rate of return of 18.06%. Distribution of the actual rates of return on assets in FYE 2009 were as follows:
| Rate Of Return | Percent Of Companies |
| 30% or more | 1% |
| 25% to 29.9% | 10% |
| 20% to 24.99% | 34% |
| 15% to 19.99% | 31% |
| 10% to 14.99% | 13% |
| 5% to 9.99% | 5% |
| 0% to 4.99% | 2% |
| Less than 0% | 4% |
In FYE 2008, only 2% of the companies realized positive investment returns, with an average actual annual rate of return of -23.23%. Rates of return in prior years were 8.26% in 2007, 12.15% in 2006, 8.05% in 2005, 10.7% in 2004, and 19.91% in 2003.
The average pension asset allocation changed slightly in FYE 2009 as companies gradually moved out of debt securities and into equities and other assets, as follows:
| Asset Type | 2009 | 2008 |
| Equities | 52.20% | 51.13% |
| Debt | 34.90 | 37.91 |
| Cash | 4.10 | 2.16 |
| Real Estate | 1.40 | 2.02 |
| Other | 8.50 | 6.78 |
Actuarial Assumptions
The discount rate used to calculate the present value of pension obligations averaged 5.84% in FYE 2009, with a range of 3.80% to 6.75%. The survey found that 44% of the companies used a discount rate between 5.76% and 6.0%, while 24% of the companies used a discount rate between 5.51% and 5.75%. In FYE 2008, the average discount rate was 6.30%, with a range o 3.59% to 8.5%.
The salary scale assumption used to project current pay averaged 4.03% in FYE 2009, with a range of 2.0% to 6.95%. The survey found that 38% of the companies used a salary scale assumption between 3.51% and 4.0%, while 24% of the companies used a salary scale between 4.01% and 4.5%, and 22% of the companies used a salary scale of 3.5% or less. In FYE 2008, the salary scale assumption averaged 4.12%, with a range of 2.0% to 7.0%.
The expected rate of return of pension plan assets assumption averaged 7.97% in FYE 2009, with a range of 4.0% to 9.0%. Only 9% of the companies used an expected rate of return of 7.0% or less. The most popular expected rate of return ranged from 8.01% to 8.5% (used by 37% of the companies), followed by 7.51% to 8.0% (used by 30% of the companies). In FYE 2008, the expected rate of return assumption averaged 8.10%, with a range of 5.1% to 9.0%.
Postretirement Benefits
Postretirement medical benefits are provided by 90% of the companies in the Towers Watson survey; 64% of the companies provide postretirement life insurance benefits.
The discount rate used to measure the obligation for other postretirement benefits averaged 5.74% in FYE 2009, with a range of 4.6% to 6.86%. In FYE 2008, the discount rate averaged 6.34%, with a range of 4.95% to 8.6%. The survey noted that “although pension and other postretirement benefit plans might have different patterns of cash flow for benefit payments, 30% of the companies report using the same discount rates for both” purposes.
The initial health care cost trend rate (i.e., the assumed increase in health care costs) for 2010 averaged 8.12%, with a range of 3.0% to 11.0%. The 2009 health care cost trend rate averaged 8.3%, with a range of 3.0% to 10.40%.
A copy of the complete survey, Accounting for Pensions and Other Postretirement Benefits, 2010, Reporting Under U.S. GAAP Among the Fortune 1000, can be found at http://www.towerswatson.com/research/3178.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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