January 2009 Public Sector Letter, "Market Value Liability and Public Pension Plans: A Continuing Controversy"

Abstract

Both the Government Accounting Standards Board (GASB) and the Actuarial Standards Board (ASB) are moving towards decisions that will address a heated debate over whether long-standing methods for calculating public pension liabilities should be supplemented - and, perhaps, eventually replaced - by a "market value liability" (MVL) methodology that is now standard for corporate pensions. The outcome of the ongoing controversy among actuaries and economists over how the costs and liabilities of public pensions should be measured, disclosed and, ultimately, funded and invested, could have sweeping consequences for the stability of the financing of state and local governments and the retirement security of their employees.

After presenting an overview of current practice and providing an overview of the MVL valuation method, this Public Sector Letter describes the arguments for and against a change in how public pension costs and liabilities are measured.

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