What interest rate is used to determine variable-rate premiums?
Variable-rate premiums are equal to $9 for every $1,000 of underfunding. For this purpose, the statute provides rules for how assets and liabilities (and thus, underfunding) are determined. The liability portion of the calculation is equal to the present value of vested benefits expected to be paid in the future. In order to determine the present value, benefits expected to be paid in the future must be discounted to reflect the interest that will be earned between the measurement date and the expected payment date. The applicable discount rate is mandated by law. 2008 and later For plan years beginning in 2008 or later, the mandated discount rate is based on corporate bond yields. Rather than having one rate apply for the entire discounting period, the rate varies based on the length of the discount period. For example, benefits expected to be paid in the next few years will be discounted based on yields on short-term bonds. Benefits that are not expected to be paid until 20-30 years
