Question

GASB standards require governments to use a discount rate equal to the long term expected rate of return on plan investments if the pension plan's fiduciary net position is projected to be sufficient to pay pension benefits. T/F

Answer 1

True, governments must use a discount rate equivalent to the expected long-term return on investments.

Step-by-step explanation:

The statement is true: GASB standards do require governments to use a discount rate equal to the long-term expected rate of return on plan investments if the pension plan's fiduciary net position is projected to be sufficient to pay pension benefits.

This approach to determining the discount rate aligns with the concept of the present discounted value which is used to evaluate the worth of an investment by comparing the present value of future benefits against current costs.

Applying this concept ensures that the pension benefits are properly valued and that the government is using a financially sound rate to discount future pension liabilities.