Scandinavian Working Papers in Economics

Working Papers,
Hanken School of Economics

No 517: Projections of Pension Fund Solvency under Alternative Accounting Regimes

Andriy Andreev () and Hans-Kristian Sjöholm ()
Additional contact information
Andriy Andreev: Swedish School of Economics and Business Administration, Postal: Arkadiankatu 22, P.O.B. 479; FIN 00101 Helsinki, Finland
Hans-Kristian Sjöholm: Swedish School of Economics and Business Administration, Postal: Arkadiankatu 22, P.O.B. 479; FIN 00101 Helsinki, Finland

Abstract: This paper examines the impact of three alternative accounting regimes on perceived pension fund solvency. Deterministic accounting assumes actuarially smoothed valuation of assets and liabilities. National accounting is based on market valuation of assets and on actuarial valuation of liabilities. International accounting books assets and liabilities to market values. Using closed-form methods based on the funding ratio return, we exemplify the dramatic effect that the choice of accounting approach has on long-horizon solvency projections.

Keywords: pension fund; solvency; long-horizon return; asset liability management; accounting standards

14 pages, September 13, 2006

Price: 10€

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