Governments are required to report the present value of future defined benefit p
ID: 2577269 • Letter: G
Question
Governments are required to report the present value of future defined benefit pension liabilities. How is the discount rate determined?
A. Use the expected return on pension investments to discount all liabilities
B. Use the municipal bond rate to discount funded liabilities and the expected return on pension investments to discount unfunded liabilities
C. Use the municipal bond rate to discount all liabilities
D. Use the expected return on pension investments to discount funded liabilities and the municipal bond rate to discount unfunded liabilities
Explanation / Answer
Accounting Standards Board (GASB), the terms “discount rate” and “investment return assumption” are used interchangeably and that rate “should be based on an estimated long-term investment yield on the investments that are expected to be used to finance the payment of benefits, with consideration given to the nature and mix of current and expected plan investments.”
While GASB is proposing numerous fundamental changes, the discount rate will still be based on the “long-term expected rate of return."
The discount rate determined is :.
A. Use the expected return on pension investments to discount all liabilities
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