Investment Update: How Do Public Plans Value Their Assets?

The brief’s key findings are:

• A new government accounting standard requires state and local pension plans to categorize assets based on the method used to determine the fair market value.
• Level 1 includes frequently traded assets like equities. Level 2 includes less liquid assets like corporate bonds.  Level 3 involves appraisals like real estate.
• For assets that lack a “readily determinable” fair market value, plans can instead use the net asset value (NAV) per share.
• However, it is possible to assign these “NAV assets” to Levels 1, 2, or 3 by matching them with comparable assets in each level.
• This reallocation shows that about one quarter of total assets are likely valued based on appraisals (Level 3), which, by definition, are more subjective.