GREENWICH, Conn. — Requiring pension funds to adopt "mark-to-market" accounting could have potentially dangerous and costly results for the equity markets, companies and their employees, according to a new Greenwich Associates report.
Two-thirds of executives at the largest pension funds in the United States said they are closely following the regulatory debate over whether to institute mark-to-market requirements.
Mark to market refers to the pricing of securities in an investment portfolio; securities that are marked to market are listed using their current value. Traditionally, companies have been able to use a smoothing mechanism when they list the securities in their pension fund portfolios in their annual reports, so major losses or gains are reported over a three-year period, not as they occur.
Although the Financial Accounting Standards Board is not currently working on a mark-to-market rule for pension funds, there has been some mention of it by officials from various regulatory organizations, in response to the corporate financial accounting scandals and the desire for greater transparency in financial statements.
When asked how they would respond to mandatory mark-to-market standards, 11% of executives at pension funds with more than $1 billion in assets said they would close their defined benefit plans to new employees, and 9% said they would convert their defined benefit plans to cash balance plans, according to John Webster, a Greenwich consultant.
"That's one-fifth of U.S. employers who would close access to defined benefit pension plans for new employees," said Mr. Webster in an interview.