US - Corporate and public pension funds' liabilities are significantly understated and pension deficits are far greater and more serious than reported, according to Ryan Asset/Liability Management.
CEO Ronald J. Ryan (pictured) said the true economic deficit for corporate pension plans - if pension assets and liabilities were properly priced at market - was as much as 40% greater than the $465bn quoted on IRS form 5500.
Ryan the discrepancy to “inappropriate accounting rules and actuarial practices” spurring poor asset allocation decisions, which caused a risk/reward behaviour asset/liability mismatch.
“Until liabilities are priced at the market with complete transparency and accuracy, pension funds bear the risk of an asset/liability disconnect which could have financially disastrous consequences,” he said.
Liabilities should be priced using a market yield curve, and a rule created and enforced that reads: “If you cannot buy it, you cannot use it as a discount rate.”
Ryan proposed a turnkey solution to the pension dilemma by accurately pricing liabilities as a daily custom index so the asset side can function efficiently and then manage assets as a Portable Alpha Liability System.
The pension industry should demand accurate accounting (pricing) of pension assets and liabilities, and only mark-to-market accounting would provide this. Also, pension aid should not come in the form of incorrect liability pricing that distorts the true asset/liability funded ratio, said Ryan.
“We should demand accurate pricing of pension liabilities using real market rates (Treasury zero-coupon yield curve) weighted by the projected schedule of actuarial benefit payments.”
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