Actuarial Vs. Market Value of Plan Assets

Plan assets in retirement systems have both market and actuarial values. This is because their value is based on how much they have to pay out, not how much they can sell for.

Plan Asset

A retirement plan is not just money in a bank account. Rather, it is invested in a number of assets, such as stocks, annuities, property, indexes, and in any combination. Each of these assets is called a plan asset: It is owned by the plan and pays out to the beneficiaries.

Market Value

The market value of a plan asset is its straight value. So, if a retirement plan has invested in a house that can be sold for $200,000, then that plan asset's market value is $200,000--if it were sold today, that is how much it would bring.

Actuarial Value

Actuarial value is more realistic because it is the adjusted market value of a plan asset. Using probability tables and risk adjustment, an actuary compensates for the future income of pension contributors and also compensates for the fact that some pensioners are going to die in the next few years. This means that the actuarial value can be higher or lower, depending on what the projected payments are going to be in the future.

References

• US Legal: Actuarial Value Law & Legal Definitions
• Pensions Board: Actuarial Value