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Retirement Savings Policy by Michael P. Barry

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Chapter 8 The Secular Decline in Interest Rates and the Viability of DB Plans

As we said in our discussion of the accounting rules applicable to DB plans, the market-based elements in FASB’s corporate pension accounting regime have, in effect, translated the secular decline in interest rates into losses on corporate financial statements.

So, let’s take a look at interest rates. Figure 8.1 (from the Federal Reserve Bank of St. Louis) charts the yield on Moody’s Seasoned Aaa Corporate Bonds from 1950 to the present. The yield here is a little lower than the “high-quality” corporate bonds used to value pension liabilities for financial statement purposes, but it will serve to illustrate the point.

Figure 8.1: Moody’s Seasoned Aaa Corporate Bonds ...

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