2020 Survey – Economic assumptions in accounting for pension and other post‑retirement benefits
Recently, Morneau Shepell issued its 20th annual survey on the economic assumptions used by Canadian public companies to account for the costs of their defined benefit plans. The data was gathered from audited financial statements as at December 31, 2019.
Here are a few highlights of the survey:
- Discount rates at December 31, 2019 decreased when compared to the prior year. The median discount rate was 3.10% as at December 31, 2019 compared to 3.80% a year earlier. The discount rates used for non-pension benefits are similar to those used for pension benefits.
- More than three quarters of the companies surveyed used a compensation increase assumption between 2.50% and 3.50% (median of 3.00%, which is identical to last year’s median).
- Companies surveyed showed a 94% overall ratio of pension assets to defined benefit obligation for accounting purposes.
- The median assumption for the short-term medical cost trend rate was 5.50% (a 0.20 % decrease over the previous year’s median), while the median ultimate trend rate was 4.50% (identical to last year).
Consideration should be given to market movements since the end of 2019, particularly given the volatility seen so far this year in terms of bond yields and asset returns due to the COVID-19 pandemic. Therefore, these results should be interpreted and used with caution. As budget discussions begin for 2021, Morneau Shepell consultants would welcome the opportunity to discuss how the volatility in 2020 may affect your employee pension plan.