Discounting Pension Liabilities: Funding versus Value / Jeffrey R. Brown, George G. Pennacchi.

Format:

Book

Author/Creator:

Brown, Jeffrey R.

Contributor:

National Bureau of Economic Research.

Pennacchi, George G.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21276.

NBER working paper series no. w21276

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Discounting Pension Liabilities

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

We argue that the appropriate discount rate for pension liabilities depends on the objective. In particular, if the objective is to measure pension under- or over- funding, a default-free discount rate should always be used, even if the liabilities are themselves not default-free. If, instead, the objective is to determine the market value of pension benefits, then it is appropriate that discount rates incorporate default risk. We also discuss the choice of a default-free discount rate. Finally, we show how cost-of-living adjustments (COLAs) that are common in public pensions can be accounted for and valued in this framework.

Notes:

Print version record

June 2015.