The Total View - (Page 45) Accounting for Defined Benefit Plans A DB plan’s funded status is generally a comparison of plan assets and liabilities. Liabilities for accounting purposes include all benefits based on service accrued to date along with a projection of future salary increases to the benefit commencement date. A discount rate is used to calculate the value of plan liabilities. This rate is determined by the plan sponsor and based on current economic conditions. As discounts drop, plan liabilities rise. The good news for DB plan sponsors is that average funding levels improved. Among DB plans with plan services provided by The Principal, the 2006 average funded status was 89 percent – an increase from 83 percent in 2005. While the 2006 funded status returned to the 2002 level, it had not yet reached the 96 percent funded peak experienced in 2000. As the funded status percentages improved, so did the percentage of plans that were at or above 100 percent funded. In 2006, 22 percent of plans with services provided by The Principal were at or above 100 percent funding, a significant improvement from 2005. The average discount rate increased from its lowest level in 2005 of 5.6 percent to 5.8 percent, but still remains far below its highest level in 2000 of 7.0 percent. 7.0% 7.0% –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 6.7% 6.7% 6.5% 6.5% –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 6.1% 5.9% 5.8% 5.6% 6.0% –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 5.5% –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 5.0% –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 1999 2000 2001 2002 2003 2004 2005 2006 Average Discount Rates by Measurement Year Fast Fact In 2006, the Principal Financial Group made DB retirement payments in excess of $1 billion to just over 210,000 retirees. 45
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