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.

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