What Discount Rate Should Be Used to Valued Defined Benefit Pension Liabilities?

Topics:
Accounting software,
Financial Regulations
Tags:
Benefit,
Finance,
Financial Planning,
Investment,
Liability,
Pension Liability,
Valuation
Source:
Pensions Institute

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Overview: In defined benefit pension plans, the primary function of the actuarial valuation is to determine appropriate contribution rates from the plan sponsor. For this reason, the valuation discount rate is based on the expected return on the assets of the pension fund and the definition of the actuarial liability can very according to the funding objectives. The valuation of pension liabilities for financial reporting purposes requires a unique definition of the accrued liabilities and a unique discount rate to value these liabilities. Equilibrium pricing theory can be used to derive a formula for the discount rate that should be used to value final salary pension liabilities.

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Format: PDF | Size: 135KB | Date: Jan 2004 | Pages: 30

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