Required Return of a DB Pension Plan

CFA Level III Portfolio Management
#1

Hi all,

I have seen this topic posted before but am still unsure about how to answer the question.

I have read in some places that the required return of a DB Pension will ALWAYS be equal to the discount rate, but then in a past AM exam session (I think 2012) the answer specifies that because the PBO = value of plan assets that the required return is equal to the discount rate.

My question is - what would the required return be if the pension was overfunded or under funded?

Would we ever be required to calculate a required return that WASN’T equal to the discount rate based on an over funded or underfunded pension?

#2

I think that the base scenario is the required return = the discount rate.

it will maintain the surplus or the equality. When the plan is under funded the manager would want minimize the sponsor contribution and in this scenario it woul more case specific

#3

I sent you a Private message on DB plans.

#4

Required returned is a factor of discount rate and the funding status.

If the Plan is under funded the RR is greater than the DR. If the plan has a surplus RR is less than the DR