In broad terms, accounting standards aim to enable employers to approximate the cost of an employee’s pension or other postretirement benefit over that employee’s service tenure. Any benefit accounting method that recognizes the cost of benefits before their payment becomes due must be based on estimates or assumptions about future events that will determine the amount and timing of benefit payments.

Two key economic assumptions in the determination of benefit costs under an accounting standard are the discount rate and inflation.

Under ASC 715, there is another key economic assumption: the expected long-term rate of return on plan assets (for funded plans). In many countries, four additional economic assumptions, which are somewhat linked to inflation, can play a key role: (1) rate of salary increase; (2) rate of increase in pensions, both in deferment and in payment; (3) cash balance interest crediting rate; and (4) rate of increase in the social security parameters reflected in the pension benefit formula. We discuss these in our full report.

Although this survey mainly explores economic assumptions, we have again shown data regarding mortality assumptions, which are receiving closer attention because of increasing longevity.