Industry News

Recently, the National Association of State Retirement Administrators (NASRA) published its issue brief, Overview of Public Pension Asset Valuation Methods. The brief is based on a new NASRA dataset with a representative sample of 129 of the largest U.S. state and local pension plans. It provides information on the use of asset smoothing among public pension plans and the level of consistency in prevailing asset valuation method practices.

According to the brief, “Asset smoothing promotes stability of the plan’s funding level, improves budget predictability for employers, and aligns with the long-term nature of pension liabilities and investment strategies. The duration of the smoothing period can affect how quickly market gains and losses are reflected in the plan’s condition and how closely the plan’s funding value of assets aligns with the market value of assets.”

Some of the key findings include:

• Most public pension plans smooth the recognition of investment gains and losses over a period of years;
• The majority of public pension plans use a five-year smoothing period; and
• Many public pension plans utilize a corridor arrangement to specify the amount that the actuarial value of assets can diverge from market value.

The brief concludes, “Although individual plan asset valuation methods vary, most plans seek to balance funding level and contribution stability with timely recognition of investment gains and losses through asset smoothing and, in many cases, corridor provisions designed to maintain a reasonable relationship between the actuarial value of assets and the market value of assets. As markets remain volatile and plan funding policies continue to receive attention, understanding these practices provides important context for evaluating factors that contribute to the determination of plans’ funding conditions and required costs.”

The brief also provides an appendix identifying the most recent asset smoothing periods and corridors for the individual plans in the dataset as of fiscal year 2025.

The brief is available here.