Actuarial vs Market Value ( fair value )


Aug 20, 2002
Market Value
The market value of a given asset is relatively easy to determine. If your plan owns 1,000 shares of ABC Widgets and that company closed at $5 today, the market value of those holdings is $5,000. The market value is an important number for several reasons. If your plan sells some stocks to take a profit, that's how they're valued for taxation purposes. It also provides the plan's administrators with a periodic "You Are Here," helping track the growth of the plan's portfolio. However, a plan's portfolio has the sole purpose of funding its pension obligations. Knowing whether you're on track involves some more complicated math.

Actuarial Value
It's not enough to know the value of the fund's assets today or tomorrow. Plan administrators need to know what the value will be when the assets are needed, which is more difficult to determine. The assets in your plan's portfolio will fluctuate in value from one day to the next, so the administrators must calculate what's called "actuarial value," which is an average value for the assets, over a given period of time. These values are calculated by specialists called actuaries, skilled in analyzing statistical data. They review this actuarial value to determine whether it will meet the plan's future obligations.

Latest posts