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Mark-to-market movement – a change in disclosure and reporting by firms of gains and losses in pension plans

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Since 2010, many firms have made the change to a mark-to-market (MTM) accounting framework for reporting actuarial gains and losses related to their pension plans. This is a change from previous policy which amortised the gains or losses over several years as a part of the pension plan’s expense, effectively smoothing out the losses and gains. The MTM framework reports the losses (and gains) immediately, in the same year they are incurred, with the exception of losses or gains being in the “corridor” (e.g. Honeywell implemented a corridor of 10% of the greater of the market-related value of plan assets or the plans’ projected benefit obligation). In addition, when assessing the pension plan’s assets and calculating expected return, companies have changed from a calculated value to fair value for the plan’s assets.

Benefits of the MTM framework include simpler pension accounting; it is supported by GAAP’s fair value accounting principles, reflects current market returns (as well as interest rates and actuarial assumptions) and recognises losses and gains in the period they were incurred. It also doesn’t change any benefits paid out to plan members, nor the operation of the plan or company. Ultimately, it provides improved clarity and greater transparency.

A result of this change, especially noteworthy in 2010 and 2011 (not being too far from the 2008-2009 financial crisis), was that companies could avoid reporting large (past) losses in current and future financial statements.

Principal and consulting actuary at Mercer LLC, Steve Alpert, said, “So the losses are assigned to the past (statements), which nobody cares about.”

AT&T was among the first few firms to adopt the MTM framework. Richard G. Lindner, AT&T’s senior executive vice president and chief financial officer, said, “In the past, we have amortized actuarial gains and losses over many years. Now these gain and losses, which are driven by changes in the value of benefit plan assets and liabilities due to changing market conditions and assumptions, will be reflected on our income statement annually in the fourth quarter.”

“If we have a large financial loss, like we had in 2008, you see it in our results that year instead of it being reflected over many years in the future.”

In effect, the gains and losses can be tied to actual economic events, improving transparency.

Mr Alpert also noted that the pension plan losses incurred during 2007 and 2008, which would probably have been carried between 5 and 10 years, would be avoided by companies who take on the MTM framework.


Further reading:


Kim, J., Wasley, C. E., & Wu, J. S. (2015). Economic Determinants of the Decision to Voluntarily Adopt Mark-to-Market Accounting for Pension Gains and Losses. Available at SSRN 2576826.


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