NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Discounting Pension Liabilities: Funding versus Value

Jeffrey R. Brown, George G. Pennacchi

NBER Working Paper No. 21276
Issued in June 2015
NBER Program(s):The Program on Aging, The Asset Pricing Program, The Public Economics Program

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.

download in pdf format
   (421 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21276

Published:

Users who downloaded this paper also downloaded* these:
Brown and Dye w21293 Illinois Pensions in a Fiscal Context: A (Basket) Case Study
Bhardwaj, Gorton, and Rouwenhorst w21243 Facts and Fantasies about Commodity Futures Ten Years Later
De Nardi, French, and Jones w21268 Savings After Retirement: A Survey
Bartlett and McCrary w21286 Dark Trading at the Midpoint: Pricing Rules, Order Flow, and High Frequency Liquidity Provision
Khan w20945 ‘To Have and Have Not’: Are Rich Litigious Plaintiffs Favored in Court?
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us