The assumed rate of return is one of the major actuarial assumptions underlying pension fund valuations. It influences the calculation of a plan’s total liabilities and drives the required annual contributions to the plan. A high assumed rate will result in lower levels of estimated liabilities and allow politicians to appropriate lower annual contribution to the pension systems. This portends disaster when the assumed rates of return are higher than actual returns. Even small differences in these two numbers can cause a plan’s unfunded liability to balloon.
Read the full story here.