Understanding Discount Rates Under SFAS 87

Abstract

FASB has redefined the role of the accountant in employers’ accounting for pensions. This paper reviews the process through which the accountant defines and applies the settlement rate under SFAS 87. An example illustrates the potential impact on income and the balance sheet of alternative rates. SFAS 87 guidelines regarding acceptable rates are examined to demonstrate the degree of flexibility still existing in the selection of an appropriate discount rate.