Dear Actuary: Interest rate assumption
25 March 2022
This report, titled “Dear Actuary,” is organized as a response to a question posed by a hypothetical plan sponsor who asks why their town uses a lower interest-rate assumption compared with that of a municipality nearby. The explanation covers the factors affecting the interest rate assumption, and discusses the following:
- Public pension funding sources
- Impact of investment returns
- Hypothetical asset allocation
- Distribution of expected returns over time
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