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 public employees, such as 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.