Defined Benefit inflation

CFA Level III
#1

From Q1 of 2015 morning, why is inflation not included as target? DB plan is not inflation adjusted?

#2

Depends, if there are no active participants, and the benefis are fixed, then you don’t adjust for inflation.

#3

i think its more that the plan is fully funded and the pv of liabilities is the mv of the assets so the discount rate is the required return.

#4

If it’s a liability mimicking plan, yes. The nominal discount rate would be used as the return objective.

#5

Remember the actuarial discount rate takes inflation into account so you don’t need to add inflation to the discount rate

#6

the required rate given by the actuarial department ( liablities) is also nominal :slight_smile:

#7

Thanks guys