The Treatment of Assets in Pension Funding

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.