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PV of pension liabilities

Schweser p.50, Book 2.

Under second paragraph, it says “during ….falling interest rate, ….. the PV of the plan’s liabilities rises”

I thought the PV should NOT be affected by the current market rate? The actuarial discount rate should be used, instead of any market rate.

- sticky

- sticky

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Plan’s liability are bond-like. Interest up, bond price down. Interest down, bond price up. You are right, they do use acturial discount rate, however, actuarial discount rate needs to be in line with the market rate.

And regardless of what rate they use, you could still mark it to market using current market rates and get something really meaningful.

I’m Da Church of the faithful, I’m Liao Fengyi, clergywoman mother should have to introduce you to me, I have seen you twice, in which time you are more impressed with everyone I guess in the back of the church at noon to eat noodle face!


“They” do not believe that there is any other meaningful measure of funded status but market value. What you (and many others) confuse is the methods used to smooth the volatility of contributions (a cash flow management tool) vs. the plan’s surplus/deficit measure on the balance sheet (for which there is only one right answer).

Sadly, it took almost 20 years to figure out that companies had the wrong number on the b/s. And for some reason, everyone blames the actuaries for this. Last I heard, FASB is staffed by accountants.