Headline: A Sour Surprise for Public Pensions: Two Sets of Books
Publication: The New York Times
Article Date: Sep 17, 2016
Using a small Riverside County pest control district with only six employees as an example, this article explains the controversial difference between “Actuarial Value” and “Market Value” when calculating the future liability of benefits owed by public pension funds. The actuarial approach includes the assumed rates of investment return by the pension systems over many years; if the returns fail to materialize, the retirement funds will fall short of meeting their obligations. The market approach is more conservative, assuming a much smaller rate of return to guarantee the fund will cover promised future benefits. Bottom line: most pension systems have traditionally reported the unfunded liability using the actuarial value; now the market value comparison is being made and the unfunded numbers under this method can be headline-grabbing (double, triple or more of the perceived shortfall). Read article…