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AT&T, Inc. Message Board

  • cloudview92 cloudview92 Jan 18, 2013 1:13 AM Flag

    "Discount Rate on Pension"


    After four or five readings, I think I've grasped most of the substance of the press release. I'm still struggling with this bit, "At Dec. 31, AT&T reduced its assumed discount rate for the pension to 4.3 percent, resulting in an actuarial loss of about $12 billion, it said." Can anyone shed light on what this means?

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    • It is just an interest rate used in present value models to determine what funds investors need now to generate larger amount in the future. It is just working backward from the future amounts.

      This is also a non-cash/onetime charge. It is not really a near term issue for the company. The actuarial loss is due to an estimation of funds that may or may not be needed in future years for pensioners( could be 10 or 20 years out). Companies normally show unrealized losses and gains to pension funds when the markets are up or down. They started reporting them on an annual basis a few years back instead of deferring them for many years. This was designed to smooth out the impact to balance sheets and provide some transparency to investors but it may be more confusing to them anything.

      It is best to look at it from a long term point of view. The actuary assumption is for future years. Today it may show that a companies needs funds for pension obligations in future years (lets say 15 years out) and 3 years later it may say that the company has more than enough funds.

      This charge was also not a surprise to the markets. Most investors already knew it was coming months ago. VZ announced its planned charges to earnings a month ago, it did not impact stock price much. This is a non-issue...

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