The discount rate plays a key role in assessing whether the pension plan has enough assets to meet its future pension obligations. The discount rate reflects what the plan's assets can reasonably be expected to earn over the long term. From this are subtracted the cost of running the pension plan and provisions for plan maturity as well as major adverse events, such as the 2008 financial crisis and the volatile effects of COVID-19 on the markets.
The discount rate is approved annually by the plan's board members. The process to set the discount rate is robust to ensure this assumption is reasonable and appropriate for the plan.
The discount rate must be realistic to avoid masking plan funding issues that could impact future generations of retirees and plan members. For example, if the assumption is too high and investments earn less than expected, a funding shortfall could result, requiring younger and future plan members to contribute more to the pension plan, receive lower benefits, or both. If the assumption is too low, current members could pay more than necessary for their pensions or benefits may be reduced more than necessary.
Discount rates used in recent funding valuations follow.
|Valuation||Discount Rate/Inflation Rate|
|Jan. 1, 2021||4.50% (2.45% real, 2.0% inflation)|
|Jan. 1, 2020||4.65% (2.60% real, 2.0% inflation)|
|Jan. 1, 2019*||4.80% (2.75% real, 2.0% inflation)|
|Jan. 1, 2018||4.80% (2.75% real, 2.0% inflation)|
|Jan. 1, 2017||4.80% (2.75% real, 2.0% inflation)|
|Jan. 1, 2016||4.80% (2.75% real, 2.0% inflation)|
|Jan. 1, 2015||4.85% (2.85% real, 2.0% inflation)|
|Jan. 1, 2014||4.95% (2.85% real, 2.1% inflation)|
|Jan. 1, 2013*||5.00% (2.75% real, 2.25% inflation)|
|Jan. 1, 2012||5.30% (3.1% real, 2.2% inflation)|
|Jan. 1, 2011||5.40% (3.25% real, 2.15% inflation)|