Market Rates of Return for Effective Financial Management

The discount rates used by defined-benefit pension systems to value their liabilities and to determine annual contributions have long been a point of concern and contention. Until 2014, governmental accounting standards required that pension funds use the assumed rate of return (ARR) on their portfolio as the discount rate for both management and reporting purposes. With the implementation of Statement 68 of the Governmental Accounting Standards Board (GASB), the ARR will be applied as a discount rate only on the portion of liabilities covered by existing assets, but it will remain a critical metric for many institutional investors.

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