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Does a discount rate rule ensure a pension plan can pay promised benefits without excessive asset accumulation?
Download2017-12-18
Landon, Stuart, Smith, Constance E.
The choice of discount rate makes a substantial difference to the magnitude of the assets required to ensure a pension plan is fully funded. Finance theory suggests that the discount rate should equal the default-free rate, but pension plan administrators argue for a rate equal to the long run...
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Managing uncertainty: The search for a golden discount-rate rule for defined-benefit pensions
Download2019-01-01
Landon, Stuart, Smith, Constance E.
This Commentary examines how the choice of a pension plan discount rate affects the tradeoff between the risk of holding insufficient assets to pay promised benefits and the cost of acquiring more assets. The choice of discount rate can have a dramatic effect on the value of a plan’s liabilities...