The company that brings you the Yellow Pages added $52 million to the amount it owes past employees in the form of benefits such as pensions and medical care. This is 36 percent higher than the sum the company owed this time last year.

The $52 million increase is added to the current value of payments that Yellow Media Inc. will need to pay in the future. The only reason the amount shows up on the balance sheet now is because at some point, Yellow Media Inc. will have to pay this amount.

Doing the math.

The benefit payments are projected payments.

There are two reasons why this amount increased so much in just one year: a change in mortality rate assumptions and a change in the discount rate.

If past employees are expected to live longer, the mortality assumptions will change. This means that potentially people are expected to live longer, causing Yellow Media Inc. to pay benefits for a longer amount of time than they previously expected.

The mortality rate is something that a company expects to change every year.

The discount rate has a greater impact on the projected pension payments than the mortality rate. The discount rate is used to discount the estimated payments a company must make in the future to today’s current value.

The discount rate dropped throughout the 2014 year, creating a crippling effect on the post-benefit payments of Yellow Media Inc.

It is the decline in the discount rate which has increased the future amounts owed by Yellow Media Inc. to the tune of $52 million in one year.

This graph exemplifies how the declining discount rate increases the amount of future payments owed. The graph is based on the following financial statements: September 2014, June 2014, March 2014, and December 2013. This graph was created by the author for the purpose of this article.

This $52 million increase to the company’s benefit payments has nothing to do with the performance of the company in terms of investments.

The consequences.

In response to questions about the increase in pension payments via email, Fiona Story, the Director of Public Relations and Corporate Communications at Yellow Media Inc. said, “It has no impact on our ability to continue making investments in our business operations.”

When asked about the affects of declining discount rates, Professor Lynnette Purda, an Associate Professor of Finance at Queen’s University School of Business said, “Absolutely there can be financial consequences.”

This decrease in the discount rate creates a much larger liability in terms of the present value of what a company will owe and Yellow Media Inc. isn’t alone.

A national trend.

“If you were to look at the financial statements of any public company, you would see declining discount rates broadly,” said Stephen Bonnar, an actuary who works with the Canadian Institute of Actuaries.

Markets have declined and Canadian companies are currently operating in a low interest-rate environment.

Bonnar explains that discount rates have been declining for some time. “There would have been a slight uptake in 2013, and a continuing drop in 2014,” said Bonnar.

Yellow Media Inc. is one of many who exhibits this trend.

“This is a problem for a lot of organizations and entities,” says Purda. Different companies will handle it in different ways she said.

Companies are still on the hook for obligations like pension payments. They must make these payments to past employees even if they continue to increase like those of Yellow Media Inc.

If the discount rate continues to decrease, many companies may not be able to meet future payments.

There are some solutions. Companies can contribute more to their pension plans or they can change their benefits.

“All of that is very difficult to do,” said Purda.