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CRR Releases Brief on Public Plans’ Investments and Asset Value Measurements

On September 3, 2019, the Center for Retirement Research at Boston College (CRR) released its issue brief, Investment Update: How Do Public Plans Value Their Assets?  The brief: 1) provides an update on the investment performance of U.S. public pension plans since 2001; and 2) discusses new Governmental Accounting Standards Board (GASB) reporting under Statement No. 72 regarding fair value measurement and application.

The key findings include:

  • GASB Statement No. 72 requires state and local pension plans to categorize assets based on the method used to determine the fair market value.
  • The categories include: Level 1 for frequently traded assets (i.e., equities); Level 2 for less liquid assets (i.e., corporate bonds); and Level 3 for appraisals (i.e., real estate).
  • For assets without a “readily determinable” fair market value, a pension plan may use the net asset value (NAV) per share to determine the fair value.
  • Potentially these “NAV assets” may be assigned to Levels 1, 2, or 3 when equated with comparable assets in each level.
  • Due to redistributing NAV assets, about 25% of total assets may be valued based on appraisals under Level 3, which are more subjective.

The brief concludes, “The new standards are an important step towards greater investment transparency, but they could be improved with clearer disclosure of NAV assets.  Such information would allow the public to better understand what portion of plans’ reported assets are based on estimates that, by necessity, are more subjective.”

The brief is available here.