Reference no: EM133272876

In general, how can an employer choose an approiate discount rate for its pension plan? What information could an employer use in choosing a discount rate?

One of the most important assumptions we make while doing an actuarial evaluation is the discount rate.The discount rate is the long-term interest rate used to fund future pension benefits (Discount Rate Frequently Asked Questions, n.d.) . Using the discount rate, we determine the present value of future pension liabilities. (Explaining the Discount Rate - Local Authorities Pension Plan,). We calculate the present cost of future pension liabilities using the discount rate . The discount rate should be based on the high-quality corporate bonds' yields and not on the average yield basis. It should be calculated using the plan's measurement date instead of the average yield. . Employers should consider the kind of plan, legal criteria, and computing process when choosing an appropriate discount rate for their pension plans.