Corporate plans
Corporate sponsors use the ROA assumption to determine the pension expense recognized on their income statements. Under US accounting standards, the pension expense includes a credit (income) equal to the plan’s expected return on assets during the fiscal year.
The average ROA assumption reported by Russell 3000 companies at year‑end 2023 was 5.9%, which was 70 bps higher than the average in 2022. This reversed a 15-year string of declining ROA assumptions. Still, the average ROA assumption is 200 bps lower than in 2006, when the introduction of mark-to-market balance sheet accounting for pension plans by the Financial Accounting Standards Board (FASB) and the passage of the Pension Protection Act by Congress first prompted many plan sponsors to reevaluate their investment strategies.
The distribution of ROA assumptions sheds additional light on the long-term decline in the average assumption. In 2006, just over 10% of companies selected an ROA assumption below 7.0%. But by 2023, 80% of companies had selected an ROA assumption below 7.0%. Revisions have occurred across the board, although…