Mark-To-Market Impacts Pension Funds

It is anticipated that corporations would take less equity and other investment risk in their defined benefit plans if a revision the International Accounting Standards Board (IASB) is proposing for pension accounting is adopted. The IASB provision would require companies to immediately recognize gains and losses in their defined benefit plans on their income statements. These changes are now amortized over an extended period of years.
Caitlin Long, managing director and head of the pension solutions group of Morgan Stanley, New York, explains that the current amortization is “an incentive in GAAP (Generally Accepted Accounting Principles) to take more investment risk.”
Judy Schub, managing director of the Committee on Investment of Employee Benefit Assets, Bethesda, Md., was also quoted by Pension & Investments and she agrees. “The closer you get to mark-to-market (accounting) the more derisking you have in (pension fund) portfolios and the more expensive plans would be.”
The IASB proposal would bring market valuation of pension plan gains and losses to the income statement.
“We argue this whole trend is pushing plans away from a long-term focus, and the more you do that the more you undermine existing plans,” Schub said.
MTM for pension funds is backwards. Don’t we want our pension funds to be intended to take the “long-term” view?