Download Fair Value and Pension Fund Management by Niels E. Kortleve, Theo E. Nijman, Eduard H. M. Ponds PDF

By Niels E. Kortleve, Theo E. Nijman, Eduard H. M. Ponds

The papers amassed during this booklet are in regards to the program of fair-value ideas to accounting for pensions and its outcomes for pension coverage. through comparability with valuing the monstrous bulk of company resources and liabilities, the industry values of 401-k plan resources and liabilities might be anticipated fairly adequately. however, pension accounting has been, and mostly nonetheless is, probably the most arcane and opaque components of economic reporting simply because fair-value rules should not utilized. various experiences have documented the distorting results that these accounting practices have had on company pension investment and asset allocation selection. based on new ideas followed by way of the foreign Accounting criteria Board, sure fair-value rules should be utilized within the yr 2006. The booklet of this booklet now could be therefore just-in-time. It bargains nice worth to pension pros, pension fund trustees, regulators, and certainly somebody with a major curiosity in pension coverage. It offers with the applying of fair-value rules to accounting for pensions. it truly is written in line with the hot ideas set by way of the overseas Accounting criteria Board. This ebook fills a considerable hole during this box.

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Extra resources for Fair Value and Pension Fund Management

Example text

Economic decisions being taken on mis-valuation of liabilities is simply an extension of our example or oranges rotting in the fields. 8. Economic benefits of using the fair value – obligee’s perspective The use of fair values is slightly more complex when viewed from the perspective of the other end user – the employee or obligee in receipt of a benefit. The additional complexity arises because in the case of a typical obligor (shareholder or taxpayer in the case of a state run industry) we can usually assume confidently that either the assets and liabilities represent marginal contributions to the obligor’s total wealth (thus suggesting marginal indifference to the choice between various asset exposures) or (if the asset or liabilities represent a larger component of wealth) he is able to go long or short of his exposure using his other available asset portfolio.

Exley or saving for the future. Textbook economic theory suggests that in equilibrium an individual should be indifferent between a marginal dollar allocated to consumption or saving. Were this not the case then the individual could enhance his own well being by either saving more and consuming less or consuming more and saving less. This concept does not stop at consumption and saving. Within the chosen consumption, individuals are in principle also marginally indifferent between spending an extra dollar on apples or oranges.

A+$c). Its value indicates the size of the ‘undefined’ part of the defined benefit plan. In other words, it is the ‘fair value’ estimate of the DB balance sheet not explicitly assigned to any stakeholder group as either a ‘contingent obligation to pay more’, or a ‘contingent obligation to take a lower benefit’. Surely this is material information that should be disclosed to all balance sheet stakeholders. A word of caution to readers: to simplify the balance sheets, we assume ‘closed’ DB plans.

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