tobeadjusted constantly, upordownJacomposite rate,inwhichchanges are applied onlyprospectively, smoothes outtheshort-term variations andthus necessitates fewerchanges intherate. -12-in in ,red the 79 9, '. he nt e oth eof e f. in t., 79 t: t:he !ve t:he ,e39.AstheBoardpointed outinitsreporttotheGeneral Assembly atits thirty-ninth ses:;ion, theFundderives abenefit fromtheexistence ofthe commutation prov:Lsion intheRegulations, inthatcommuted lump-sum amounts, unlike periodic benefits, donotattract cost-of-living adjustment afteraward. Forthe Fundtoma~eneither anactuarial gainnoranactuarial lossonthelump-sum commutations, thediscount'rate usedshouldbeequaltothereal rate ofreturnon investments assumed intheactuarial valuation. Aswasstatedinparagraph 13,the real rate ofreturnassumed intheIIregular valuation" (6.5/9/6 basis)is 3percentayear. Adiscount rateinexcessof3percentwillthusyieldan actuarial gaintotheFund.Thehighertherate,thegreater thegainwillbeJon theotherhand,anunreasonably highratecouldresultinfewerparticipants availing themselves ofthecommutation provision, andthatwouldbeactuarially disadvantageous totheFund.1/ 40.Aswasindicated inparagraph 16above,onereason whytheactuarial balance oftheFundhasimproved hasbeenthereflection intheassumptions forthe valuation ofthehigherthanpreviously assumed incidence ofcommutations. The consulting actuary estimates thatifthecommutation provision waseliminated, the actuarial imbalance wouldincrease by1.33percentoftotalpensionable remuneration. 41.Inaccordance withtherequest oftheGeneral Assembly, themethodof calculating thelump-sum commutation ofbenefits wasreviewed bytheCommittee of Actuaries. 42.TheCommittee ofActuaries informed theBoardthat,atfirstglance, theuse ofauniform discount ratewasappealing. Ithadtheadvantage ofsimplicity, both asregards administration andunderstanding onthepartoftheparticipants, andit wouldyieldasmallactuarial gainiftheuniform ratewashigherthanthecurrent composite rate. Ontheotherhand,iftheuniform rateyielded alowerlump-sum basedonservice before1985,thatwould'raisethequestion ofviolation ofaccrued rights. Furthermore, computers wereeasilyhandling themorecomplex composite rate.'TheCommittee ofActuaries concluded thatthedisadvantages ofusinga uniform ratefaroutweighed therelatively smalladvantages. TheCommittee was inclined totheviewthatthediscount rateshouldbeonlysomewhat higherthanthe realinterest rateassumed intheactuarial valuation. However, itrecognized that ithad~been decided thatthediscount rateshouldbewellabovetherealinterest rate,soastoyieldasubstantial actuarial gaintotheFund.Withinthatconcept theCommittee believed thatthepresent methodofusingcomposite discount rates should becontinued. The6.5percentdiscount rateapplicable tofutureservice shouldnotbeincreased further towards thenominal interest rateof9percent usedintheregular valuation, because thatwouldbeinequitable tothe participants whooptedforalump-sum commutation andthuslostcost-of-living adjustments onthecommuted portion oftheirperiodic benefits. TheCommittee further believed that,inordertobecompatible withtheadopted procedure, the 6.5percentrateapplicable tofutureservice shouldbecontinued untilsuchtime asthe"gross"interest rateusedintheregular valuation (currently 9percent) fellbelow6.5percent. 43.InthelightoftheviewsoftheCommittee ofActuaries andofitsown examination ofthequestion, thePension Boardconcluded thatthecontinUed useof acomposite discount ratewasfairandequitable, andintheinterest ofboththe FundandtheparticipantsJ theintroduction ofauniform discount ratecould discourage participants fromexercising thelump-sum commutation option, andwould thusbedetrimental totheactuarial situation oftheFund. -13-46.Inthelightoftheviewsexpressed intheFifthCommittee atthethirty-ninth session, theBoardexamined thepension ben~fits ofofficials at Under-Secretary-General, Assistant Secretary-General andD-2levels. TheBoard notedthatthemaximum (i.e.after35yearsofcontributory service) annualbasic pensions payable undertheRegulations toseniorofficials retiring in1985were
**Analysis**
The text appears to be discussing the financial management of a pension fund, specifically the calculation of lump-sum commutations and the discount rates used to determine their value. The language used is technical and actuarial, suggesting a focus on the financial and economic aspects of the pension fund. The text also touches on the concept of cost-of-living adjustments and the impact of changes to the discount rate on the fund's actuarial balance.

**Category**
Employment, Finance