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The Treatment of Assets in Pension Funding

  • M. Iqbal Owadally (a1) and Steven Haberman (a1)

Abstract

A recent survey of actuarial practitioners in North America shows that smoothed-market actuarial asset values are commonly used in funding valuations of defined benefit pension plans. Four methods of calculating such values are reported in the actuarial literature but only qualitative descriptions of the methods are given. This paper provides mathematical descriptions of the “average of market”, “weighted average”, “deferred recognition” and “write-up” actuarial values. They are shown to be based on either arithmetic or exponential smoothing. Provided the same form of smoothing is used, the four methods are equivalent.

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Copyright

References

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Aitken, W.H. (1994) Pension Funding and Valuation. Actex Publications, Winsted, Connecticut.
Anderson, A.W. (1992) Pension Mathematics for Actuaries, 2nd ed. Actex Publications,Winsted, Connecticut.
CRSR (2001) Survey of asset valuation methods for defined benefit pension plans. Pension Forum, 13(1), 149. Society of Actuaries, Schaumburg, Illinois.
Ezra, D.D. (1979) Understanding Pension Fund Finance and Investment. Pagurian Press, Toronto, Canada.
Owadally, M.I. and Haberman, S. (2003) Exponential smoothing methods in pension funding. IMA Journal of Management Mathematics 14(2), 129143.
Marwick, Peat (1986) Interpretation of Pension Statements. Note 461-32-87, Society of Actuaries, Schaumburg, Illinois.
Winklevoss, H.E. (1993) Pension Mathematics with Numerical Illustrations, 2nd ed. University of Pennsylvania Press, Philadelphia, Pennsylvania.

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The Treatment of Assets in Pension Funding

  • M. Iqbal Owadally (a1) and Steven Haberman (a1)

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