NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Logical Implications of GASB's Methodology for Valuing Pension Liabilities

Robert Novy-Marx

NBER Working Paper No. 17613
Issued in November 2011
NBER Program(s):   AP   PE

It is well known that the funding status of state and local government defined benefit pension plans, as measured by the accounting methodology prescribed by the Governmental Accounting Standards Board (GASB), improves when the plans take on more investment risk. This paper documents several lesser known logical implications of the GASB methodology. In particular, I show that GASB accounting is susceptible to the “Yogi Berra fallacy,” under which a pizza is less filling when sliced into fewer pieces: GASB gives different “valuations” for the exact same assets and liabilities when they are partitioned differently among plans. Moreover, the marginal valuation of assets can be negative under GASB. In such cases a plan can improve its GASB funding status literally by burning money. Finally, I show that GASB’s methodology is exactly equivalent to fairly valuing plan liabilities, but accounting for stocks at more than twice their traded prices, and further crediting a plan an additional dollar for each dollar of stock that it intends to buy in the future.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Users who downloaded this paper also downloaded these:
Brown, Clark, and Rauh w16792 The Economics of State and Local Public Pensions
Fuster, Hebert, and Laibson w17301 Natural Expectations, Macroeconomic Dynamics, and Asset Pricing
Piketty, Saez, and Stantcheva w17616 Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities
Novy-Marx and Rauh w18489 The Revenue Demands of Public Employee Pension Promises
Hamermesh and Abrevaya w17327 "Beauty Is the Promise of Happiness"?
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us