2024Globalsurveyof

accountingassumptionsfordefinedbenefitplans

ExecutiveSummaryJuly2024

wtw

Executivesummary

The2024GlobalSurveyofAccounting

AssumptionsforDefinedBenefit

Plansisthe35thannualWTWsurveyofassumptionsselectedbymajor

corporationsfortheirdefinedbenefit(DB)plansaroundtheworld.

Inbroadterms,accountingstandardsaimtoenableemployerstoapproximatethecostofanemployee’spensionorotherpostretirementbenefitoverthat

employee’sservicetenure.Anybenefitaccounting

methodthatrecognizesthecostofbenefitsbeforetheirpaymentbecomesduemustbebasedonestimatesorassumptionsaboutfutureeventsthatwilldeterminetheamountandtimingofbenefitpayments.

Twokeyeconomicassumptionsinthedeterminationofbenefitcostsunderanaccountingstandardare

thediscountrateandinflation.UnderASC715,there

isanotherkeyeconomicassumption—theexpected

long-termrateofreturnonplanassets(forfundedplans).Inmanycountries,fouradditionaleconomicassumptions,whicharesomewhatlinkedtoinflation,canplayakeyrole:(1)rateofsalaryincrease;(2)rateofincreaseinpensions,bothindefermentandinpayment;(3)cashbalance

interestcreditingrate;and(4)rateofincreaseinthe

socialsecurityparametersreflectedinthepensionbenefitformula.Wediscusstheseinourfullreport.

Althoughthissurveymainlyexploreseconomic

assumptions,wehaveagainshowndataregardingmortalityassumptions,whicharereceivingcloserattentionbecauseofincreasinglongevity.

Theobservationsinthisreportreflectdataatornearthe

endof2023.ConsiderationshouldbegiventomarketmovementssinceDecember31,2023.Asdiscussionsaroundaccountingassumptionsstartforthe2024

year-end,yourWTWconsultantwouldwelcometheopportunitytodiscusshowthatvolatilitymighthaveaffectedyourplans'liabilitiesandassets.

Keyfindings

Ourfullreport,whichrepresents1,100companieswith

datafrom47countriesandregions,includesthefollowingkeyfindings:

?In2023,therewasaglobaldeclineinbothcorporateandgovernmentbondyields.Specifically,governmentbondyieldsdecreasedin33outofthe42listed

countries.Additionally,halfoftheEurozonecountriesendedtheyearwithareductioningovernmentbondyieldsexceeding50basispoints.

?As2023unfolded,economicuncertaintiespersisted;

however,themainstockmarketsexhibitedresilience,

maintaininglevelsclosetothoseobservedatthe

endof2022.Somemarketsevenshowedmodest

improvements.Movinginto2024,whilenotfully

recoveringtoprevioushighs,mostmajorindices

demonstratedcautiousoptimisminthefaceofongoingglobaleconomicchallenges.

?Theyear-on-yearchangesofexpectedratesofreturnassumptionshaveremainedfairlystable,rangingfrom–28bpsto+58bps.

Discountrates

Discountratesareusedtocalculatebenefitobligations,andtheserviceandinterestcostportionoftheemployeebenefitcost.

WhileASC715doesnotexplicitlydefinethequalityofthebondyields,mostplansponsorsbasetheirdiscountrateonAA-ratedbonds.IAS19referstohigh-qualitycorporatebondyields,whichisgenerallyinterpretedtomean

AA-ratedorbetter.Theprimaryfocusforcorporationshasbeenplacedonlong-term,high-qualitycorporatebondsofappropriatedurationconsistentwiththe

benefitobligation.

Wherethereisnodeepmarketincorporatebonds,

itiscustomaryforASC715discountratestobebasedongovernmentbondsbutadjustedbysomelevelofriskpremiumtoapproximatecorporatebondyields.Bycontrast,IAS19requirestheuseofgovernment

bondswithnoadditionalriskpremiuminsuchsituations;therefore,wepresentdiscountratesforbothaccountingstandardsseparately.

Figure1showstheaveragediscountratesforbenefit

obligationsattheendof2023and2022,usingASC715

andIAS19.ThesetablesincludevaluesforcompanieswithDecember31balancesheetdatesonly.Oursurveyresultsformajoreconomiesrevealareversalinthe2023discountrateupward-trend,withtheexceptionofJapan.

Forcountrieswithadeepmarketincorporatebonds,

ithasbecomeincreasinglycommontomatchexpectedcashflowsfromtheplaneithertoaportfolioofbonds

thatgeneratessufficientcashflowsortoanotional

yieldcurvegeneratedfromavailablebondinformation.ThisisacommonapproachinCanada,theEurozone,

Japan,theU.K.andtheU.S.andisbecomingmore

commoninAustralia,Norway,SwedenandSwitzerland.

Inflation

Theassumptionforlong-termpriceinflationinfluencesothereconomicassumptionssuchas:

?Rateofsalaryincrease

?Rateofincreaseinpensions,bothindefermentandinpayment

?Rateofincreaseinthesocialsecurityparametersreflectedinthepensionbenefitformula

?Cashbalanceinterestcreditingrateforsomeplans

Figure2showstheaverageinflationassumptionforthe2024and2023expense.Forsomedevelopingcountries,inflationhashistoricallybeenveryvolatile,whichhas

ledsomecompaniestoselectassumptionsonareal

basis(i.e.,netofinflation).Contrarytotheprevious

year,inflationrateshavebeenoveralldiminishedinlinewithmonetarypoliciesadjustments,exceptinJapan

andSwitzerland.IntheU.K.andEurozonecountries,inflationcurvesareoftenusedtoderiveaplan’s

inflationassumption.

Figure1.Discountratesforbenefitobligations—averages

Averages—IAS19

Averages—ASC715

2024202320242023

Canada

4.81%

5.10%

4.69%

5.06%

Germany

3.39%

3.74%

3.36%

3.66%

Japan

1.75%

1.56%

1.69%

1.52%

Netherlands

3.35%

3.67%

3.47%

3.64%

Switzerland

1.43%

2.13%

1.45%

2.13%

UnitedKingdom

4.62%

4.85%

4.64%

4.79%

UnitedStates

5.21%

5.52%

5.09%

5.36%

Forthepurposesofthistable,2024representsthediscountrateassumptionusedforbenefitobligationsattheendof2023.

Figure2.Inflationassumptions—averages

Canada

GermanyJapan

Netherlands

Switzerland

UnitedKingdom*UnitedStates

2024

2.04%

2.24%

1.37%

2.23%

1.25%

3.16%

2.69%

2023

2.05%

2.28%

1.33%

2.31%

1.19%

3.30%

2.72%

*Retailpriceindex

4/2024GlobalSurveyofAccountingAssumptionsforDefinedBenefitPlans—ExecutiveSummary

Expectedratesofreturn

Theexpectedrateofreturnonassetsisthelong-term

expectationoftheannualearningsrateontheassetsof

thepensionfund.UnderASC715,theexpectedreturn

onassetsisacomponentoftheemployeebenefitcost.

Expectedratesofreturnreflecttheplansponsor’soutlookwhileconsideringtheplan’sassetallocation.

Figure3showstheaverageallocationsplitamong

equities,bonds,property,cashandinsurancecontracts/otherinvestments.Theweightedaverageoftheexpectedlong-termrateofreturnoneachclassgivesanindicationoftheappropriateexpectedreturnonassetsassumption.

Incomparingwithresultsfromlastyear’ssurvey,

wewitnessedonlyminorchangesinassetallocationsacrosstheboard.

Assetallocationsarelikelytobedrivenbyseveralfactors,suchasfundedstatus,sponsorriskappetite,nature

andmaturityoftheobligations,andlocalregulations.ThecompleteresultsshowthatsponsorsinAustralia,

HongKongSARandNewZealandareholdingrelativelylargeequitypositions(morethan45%).Brazil,India,

Indonesia,MexicoandTaiwanarecountrieswhere

regulatoryinvestmentrestrictionsinfluencetheirassetmix.

Figure4showstheaverageexpectedratesofreturnfor

2024and2023expenseforallplansreportedunderASC715only.Theyear-on-yearchangesofexpectedratesof

returnassumptionsvaryevenwithindevelopedcountriesbothindirectionandmagnitudeofchange.Highlevelsofuncertaintyregardingboththefixed-incomeandequity

markets,pairedwiththeuncertaintyofhowinflation

mayreacttomonetarypolicy,maybethedriversbehindtheseresults.Asexpected,thereisapositivecorrelationbetweenexpectedrateofreturnandtheamountofplanassetsheldinequitiesbyplansponsors.

Figure3.Averageassetallocationbycountry

0%20%40%60%80%100%

Canada

Germany JapanNetherlands

Switzerland

UnitedKingdomUnitedStates

Equities

25%

57%

14%

19%

24%

54%

27%

38%

l33%

7%

15%

76%

21%

23%

14%

40%

11%

49%

34%

34%

43%

20%

PropertyCash

Insurance/other

Bonds

Figure4.Expectedratesofreturn—averages

Canada

GermanyJapan

Netherlands

Switzerland

UnitedKingdomUnitedStates

2024

5.25%

4.40%

2.98%

3.84%

3.59%

5.19%

6.23%

2023

5.17%

4.15%

2.75%

3.61%

3.83%

4.91%

6.23%

2024GlobalSurveyofAccountingAssumptionsforDefinedBenefitPlans—ExecutiveSummary/5

Mortalitytables

Figure5showstheassumedlifeexpectancyatage60

forbothamalecurrentlyage60andamalecurrently

age40.Notethatsometablesaregenerational,while

othersarestatic.Thelatterdonotincludeanallowanceforimprovementinlifeexpectancyforfutureemployeecohorts;thus,lifeexpectancyatage60isthesameforamalecurrentlyage60andamalecurrentlyage40.

Themajorityofsurveyedcountrieshaveimpliedlife

expectanciesofbetween20and30years.Theimpactofthedifferencesinthisassumptionwillvarydependingonthepaymentelectionassumptionbetweenlumpsumandannuity,theformoftheannuityandthemixofcurrent

planparticipants,amongotherfactors.

Projectedbenefitsecurityratio

Theprojectedbenefitsecurityratioistheratioofthe

currentmarketvalueofplanassetstotheplan’sprojectedbenefitobligation.Theprojectedbenefitobligationis

theactuarialpresentvalueofallbenefitsattributedby

thebenefitformulatoservicebeforethebalancesheetdate,includingbenefitsbasedonexpectedfuturesalaryincreases.UnderIAS19,thisisknownasthedefined

benefitobligation.

Figure6showstheaverageprojectedbenefitsecurity

ratiofor2024and2023,forfundedplansineachcountry.Asdetailedinthetablebelow,mostmajoreconomies

experienceadecreaseintheirratios,mostlyattributedtolowerdiscountrates,despitetheoverallpositiveequity

marketperformance.Inthecomprehensivereportwhere30countriesareanalysed,changesinPBOsshowed

nearlyequalproportionsofincreasesanddecreasesintheirratiosoverthecourseoftheyear.

Figure5.Lifeexpectancyofa60-year-oldmale

051015202530

Netherlands

Switzerland

Germany

UnitedKingdom

Canada

UnitedStates

Japan

Lifeexpectancyatage60ofamalecurrentlyage60

29.27

27.16

28.46

26.60

28.45

27.57

26.01

25.53

26.94

25.26

24.51

27.54

24.51

26.46

Lifeexpectancyatage60ofamalecurrentlyage40

Figure6.Projectedbenefitsecurityratio—averages

Canada

GermanyJapan

Netherlands

Switzerland

UnitedKingdomUnitedStates

2024

1.11

0.70

1.18

0.96

0.93

1.13

0.96

2023

1.14

0.67

1.09

0.97

0.99

1.17

0.97

6/2024GlobalSurveyofAccountingAssumptionsforDefinedBenefitPlans—ExecutiveSummary

Aboutthesurvey

The2024GlobalSurveyofAccountingAssumptionsforDefinedBenefitPlansisthe35thannualWTWsurveyof

assumptionsselectedbymajorcorporationsfortheirDBplansaroundtheworld.

Thefullreportcoversaccountingassumptionsunder

variousglobalstandards;forthisreport,53%ofthesurveyparticipantsreportunderASC715and47%underIAS19

orothersimilaraccountingstandards.Thisissimilartothemixofparticipantslastyear.

Wecollectedretirementplandatausingasurveyform

andvariousWTWdatabasesthatmaintainaccounting

assumptions.Resultsinthefullreportareshownona

plan-levelbasis;therefore,someresultscoulddifferfromwhatisreportedonacompanylevel.

WTWbelievesthesesurveyshaveeliciteduseful

information,andwewouldbepleasedtoprovideyou

withmoredetail.Asnapshotoffindingsforafewkey

marketsisavailableinthisexecutivesummary.Forfurtherinformation,ortoaccessthecompletesurveyfindings,

pleasecontactyourWTWconsultantor:

The1,100companiesincludedinthefullreporthavedisclosedassumptionsfortheirDBplans.Thereport

reflectsdataatorneartheendof2023.Whilethis

executivesummarycoversonlyCanada,Germany,Japan,theNetherlands,Switzerland,theUnitedKingdomandtheUnitedStates,thefollowing47countriesarerepresentedinthefullreport:

ArgentinaMexico

AustraliaNetherlands

AustriaNewZealand

BangladeshNorway

BelgiumPakistan

BrazilPhilippines

CanadaPoland

ChilePortugal

ChinaPuertoRico**

ColombiaSaudiArabia

EcuadorSingapore

FinlandSouthAfrica

FranceSouthKorea

GermanySpain

Greece