This speech from Donald Kohn is interesting at the end. Though the speech is being discussed in blogosphere for other reasons (whether low interest rates led to a rise in commodity prices- advocated by Jeff Frankel and countered by Kohn in this speech).
He offers some basis finance lessons to improve management of pension funds:
most public pension funds calculate the present value of their liabilities using the projected rate of return on the portfolio of assets as the discount rate. This practice makes little sense from an economic perspective. If they shift their portfolio into even riskier assets, does the value of the liabilities backed by their taxpayers go down?
Financial economists would say no, but the conventional approach to pension accounting says yes. Unfortunately, the measure of liabilities that results from this process has a real consequence: It pushes the burden of financing today’s pension benefits onto future taxpayers, who will be called upon to fund the true cost of existing pension promises.
Overall a good read
July 23, 2008 at 12:55 am |
[...] led to a rise in commodity prices- advocated by jeff Frankel and countered by kohn in this speech.http://mostlyeconomics.wordpress.com/2008/05/22/kohn-offers-financial-lessons/Jeff Kohn – LinkedInView jeff Kohn’s professional profile on LinkedIn. … jeff Kohn’s Education. [...]