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Minyan Mailbag: Pension Assumptions

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Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column with that very intent.

Vitaliy,

I also look at pension return assumptions as an indication of how conservative management really is. However, I also look at the discount rate assumptions, and use the spread between the pension return assumption and the discount rate. I think looking at only pension return assumptions is looking at half the equation.

Just a thought.

Minyan Kevin

Kevin,

I agree with you. Looking at discount rate assumptions is very important as well. The lower the discount rate the more conservative the management is. The reason I focus on the long-term rate of return is because I can relate to that number more. When General Motors (GM) says that it can achieve 9% long-term rate of return on their assets I start wondering if, with their asset allocation (that should be mostly tilted towards bonds), that assumption is achievable. I am not sure that looking at spreads between long-term rate of return and discount rate provides any insight into conservativism of the management. But I could be wrong.

Regards,
Vitaliy

No positions in stocks mentioned.

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