Valuing liabilites in state and local plans

Abstract

The brief's key findings are: (1) What rate to use to discount public pension liabilities is a hot topic. (1a) Government Accounting Standards Board recommends the estimated return on pension assets- about 8 percent. (1b) Economists generally argue for a riskless rate – about 5 percent. (2) Reducing the discount rate would raise the unfunded liability by $1.5 trillion. (3) While a lower discount rate greatly impacts reported funding status, it does not change what pension benefits teachers and firefighters ultimately receive. (4) And any change in funding policy would have to wait until the economy recovers.