An appropriate 10-year return assumption for pension plans with a 60/40 equity/fixed-income split is 8.5%, according to an SEI research study on FAS 87. For plans with a 70/30 split, 8.75% would be appropriate. The historical return from Jan. 1, 1995, through Sept. 30, 2004, was 10.44% and for plans with a 60/40 split and 11.53% for plans with a 70/30 split, both higher than typical assumptions.
"... It is not sufficient to look at only historical returns when determining the ROA assumption," the study said. "Despite the bear market experienced from 2000 to 2002, the past 10 years have provided returns that were well above what was expected. For this reason, it is important that plan sponsors continue to use forward-looking models to set these assumptions."
"Discount rates between 5.75% and 6.25% are likely for the 2004 disclosure," according to the study. The median rate was 6.25% in 2003, the paper noted.