Measuring liabilities using a discount rate (investment return assumption) based on a high-grade corporate bond discount
rate of 5.
Note: Receipt of cash does not always represent all of the interest income to be reported for Federal and state income tax purposes; amortization of bond discount
is also included.
If the bond discount
is large, pushing the taxpayer into a higher tax bracket, a more comprehensive strategy may be to sell some bonds before maturity but after the taxpayer has retired and is subject to a lower marginal tax rate.
In fact, Florida law in this area may be at odds with prudent investor rule obligations imposed on trustees,4 and the described lack of authority for bond discount
accretion and prohibition on bond premium amortization should be considered by trustees in determining whether to utilize a power to adjust ([section]738.
He said those in Congress who believe that granting a temporary two-year corporate bond discount
favor to defined benefit plan sponsors will create pressure for the needed comprehensive reform of the pension system "have got it backwards.
If P - F < 0, then the absolute value of D is equal to the bond discount
and it represents how much less the price of the bond is than its face value.
Temporary differences expected to arise in the future as a result of amortization of bond discount
or premium for financial reporting purposes should not be considered in the scheduling process.
7 million and write-off of bond discount
of approximately $0.
An increase in the corporate bond discount
rates was a big driver of last month's gains," said John Ehrhardt, co-author of the Milliman 100 Pension Funding Index.
Exhibit 5: Amortization of Bond Discount
Using the Interest Method * $400,000 of 9%, five-year bonds (semi-annual interest payments) sold to yield 10% at January 1, 2001.
7 million and the write-off of bond discount
of approximately $0.
But the bigger impact on funded status during the month of December was the 25 basis-point increase in the Aa corporate bond discount
rate, which is at its highest level since June.