Valuing Liabilities in State and Local Plans
The brief’s key findings are:
- What rate to use to discount public pension liabilities is a hot topic.
- The Government Accounting Standards Board recommends the estimated return on pension assets – about 8 percent.
- Economists generally argue for a riskless rate – about 5 percent.
- Reducing the discount rate would raise the unfunded liability by $1.5 trillion.
- While a lower discount rate greatly impacts reported funding status, it does not change what pension benefits teachers and firefighters ultimately receive.
- And any change in funding policy would have to wait until the economy recovers.