Despite drastic plunges in pension plan assets in recent weeks, an investment advisory firm’s research suggests plan sponsors shouldn’t necessarily assume they need to make drastic changes to their return-on-asset assumptions for financial reporting purposes.

SEI recently updated its annual research study on how companies can apply Financial Accounting Standard No. 87, Employers’ Accounting for Pensions. The firm’s research suggests short-term average returns may be extremely time dependent. For example, the 20-year average return-on-asset of a portfolio allocated 60 percent to equities and 40 percent to fixed income is 7.5 percent as of Nov. 30, 2008; it was 10.2 percent as of Nov. 30, 2007.

These are considerations plan sponsors should take into account when setting assumptions, SEI Chief Actuary Jon Waite says. But at a time when plan sponsors may face intense pressure from auditors to rethink their ROA assumptions, SEI’s research suggests more of a long-term view in setting or revising those assumptions, said Waite.

“Recent losses are a consideration,” Waite says. “But the bigger consideration will be whether you are changing asset allocation. Are you going to become more aggressive in your asset allocation to make up for that? If so, certainly the assumptions you’ve used in the past will be supportable.”

SEI says the study can be used by companies to calculate pension expense and obligations by providing guidance related to the discount rate and ROA assumptions that plan sponsors will use for 2008 year-end calculations. Discount rates, a key factor in measuring pension liabilities, have risen 50 to 100 basis points through November, Waite says. “An increase in the discount rate means the liabilities will be lower, so that’s a good thing,” he adds.

As for return on assets, Waite says the down market is one factor in setting or rethinking the assumption, but not the only factor. “We reiterate this is a long-term assumption and 2008’s experience should be one more piece of information put into the assumption,” he says.