NAPF: Mark-To-Market Inappropriate for Pension Plans

The National Association of Pension Funds (NAPF) recently warned companies that mark-to-market accounting for pension plans is “inappropriate.” Mark-to- market, says the NAPF, introduces unnecessary short-term volatility.

The counter to this volatility is extreme caution in investment policy and a reliance on low-return government bonds, both methods drive up pension plan costs, says the NAPF’s report.

“The current standards are not appropriate for the long-term nature of pensions. They allow short-term stock market volatility to perversely affect pensions and their long-term strategy by presenting large deficits which may prove inaccurate in the long run,” says NAPF chairman Lindsay Tomlinson.

United Kingdom-based NAPF follows the direction of the International Accounting Standards Board (IASB) while the United States follows the Financial Accounting Standards Board (FASB).

The two governing bodies have attempted to merge standards recently, with mark-to-market accounting being the main hot-button issue. Some notable United States companies, including Verizon, Honeywell, and AT&T, have made the switch to mark-to-market valuation of their pension plans, partially as a prediction that the FASB will adopt the IASB’s mark-to-market standards.