The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Here’s a blog from Towers Watson’s Steve Seelig and Dave Suchsland (which summarizes this longer memo):

Summary Compensation Table (SCT) disclosures of changes in pension values are set to see the largest increase in recent memory in 2015 proxies, thanks to a confluence of two events that took place in 2014:

– In October, the Society of Actuaries (SOA) released updated mortality tables to be applied when retirement plan sponsors estimate the financial obligations associated with their plans. The new tables reflect that life expectancies have improved more than predicted under the existing tables, issued in 2000. This means many companies will use updated mortality assumptions for this fiscal year in accounting for their retirement obligations that, in turn, will apply to proxy values.
– Second, interest or discount rates for 2014 decreased markedly from 2013, which means pension liabilities increase because the plan will earn less interest on investments in the future.

These changes will directly increase the change in pension value reported in the SCT, even in situations where an executive may have a frozen pension benefit. For those executives still accruing additional benefits, the impact may be even more profound. This is because the SCT change-in-pension-value calculation is tied to the assumptions used to compile a company’s overall financial statement liability.