Pension Fund Return Projections are Based on Arithmetic, not Just History

Morning Edition had a segment on a change in public pension fund accounting that will show many funds have a much larger shortfall. The piece included comments from a Stanford business school professor, Joshua Rauh, that complained that the discount rate assumed by pension funds assumed that future pension fund returns will be like past returns.

Rauh's statement to this effect is inaccurate, or at least incomplete. The main question mark in pension fund returns is the return on stock, which t...