Comments for Returns on Public Pensions: What Rates Should We Assume? at http://www.cepr.net , comment 1 to 2 out of 2 comments http://www.cepr.net Thu, 23 May 2013 13:58:02 +0100 FeedCreator 1.7.3 http://www.cepr.net/index.php/blogs/cepr-blog/returns-on-public-pensions-what-rates-should-we-assume#comment-7525 With the popularity of Men MBT Shoes http://www.mbtshoeskey.com/site_map.html - mbt shoes on sale Tue, 15 Mar 2011 21:53:45 +0100 http://www.cepr.net/index.php/blogs/cepr-blog/returns-on-public-pensions-what-rates-should-we-assume#comment-7394 This whole debate has frustrated me. Pension benefits are determined by a formula that has nothing to do with the discount rate. Therefore, future cashflows are not in any way changed by this debate over the discount rate. The discount rate does affect the timing of contributions -- as you mentioned. So, the whole debate is over the timing. Of course, for the pension haters, this is about a PR war. (These same folks will tell us to assume we'll earn 8% in our 401ks, which is another story.) Pensions are simply more efficient than DC plans for 3 reasons: 1) higher returns, especially in larger plans, 2) lower fees, and 3) INVESTMENT HORIZON!!! This one is rarely understood, more below. Actuaries have long showed a 401k accrual (add contributions and interest each year) pattern that assumes about 8% a year -- to illustrate how that works. This excercise is well worth doing if you are interested in the DB/DC debate. What you'll see is that 401k participants have to get conservative before they ever have a large fund balance. This is a tremendous opportunity costs. First, it is similar to calcuating the retirement annuity at 5%, instead of 8%. This causes a loss of at least 20-30% of the value. But, investments in a 401k have to be conservative long before retirement, too. Basically, by the time your account balance should become substantial -- you have to cede potential returns to be safe. Ugh... - DCDan Wed, 09 Mar 2011 03:24:42 +0100