Valuing Liabilities in State and Local Plans

Jun 17, 2010, 06:00 ET from Center for State and Local Government Excellence

New Center for Excellence Brief

WASHINGTON, June 17 /PRNewswire-USNewswire/ -- The Center for State and Local Government Excellence has issued a new issue brief, Valuing Liabilities in State and Local Plans.  The brief, which was written by Alicia H. Munnell, Richard W. Kopcke, Jean-Pierre Aubry, and Laura Quinby of the Center for Retirement Research at Boston College, sheds light on the debate between economists and actuaries over what discount rate should be used to value pension liabilities in the public sector.

The brief's key findings are:

What rate to use is a hot topic.  

  • The Government Accounting Standards Board (GASB) 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 has a large impact on reported funding status, it does not change what pension benefits teachers and firefighters ultimately receive.
  • A realistic measure of the funded status may  deter plans from offering overly generous benefits when the stock market soars.

Read the full brief at http://tinyurl.com/valuingliabilities

Find all the Center's publications on public sector pensions and retiree health care at www.slge.org.

About the Center for State and Local Government Excellence

The Center for State and Local Government Excellence helps state and local governments become knowledgeable and competitive employers so they can attract and retain a talented and committed workforce. The Center identifies best practices and conducts research on competitive employment practices, workforce development, pensions, retiree health security, and financial planning. The Center also brings state and local leaders together with respected researchers and features the latest demographic data on the aging workforce, research studies, and news on health care, recruitment, and succession planning on its website, www.slge.org.

SOURCE Center for State and Local Government Excellence



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