Dr. David Blake, director of the Pensions Institute at the City University of London’s Cass Business School, recently published an article proposing a more realistic valuation method for pension plans that takes into account liabilities for financially distressed companies.
“Managing Financially Distressed Pension Plans in the Interest of Beneficiaries,” which Blake co-authored with two colleagues from the University of Melbourne, calls for revisions to current valuation methods used for pension fund deficits. By not properly accounting for certain investment risks, the authors argue, the current methods don’t provide realistic valuations.
The research employed the example of General Motors, which was affected by falling stock prices during the early 2000s. The company’s pension assets decreased during this time, while its pension obligation increased.
“This approach has important advantages for all stakeholders of the corporate pension plan,” Blake said in a press release. “Staff taking out pensions will have a clearer picture of the true value of their pension promise.”
Cass’ Pensions Institute, which Blake helped establish in 1996, publishes details of its research activities at www.pensions-institute.org. Blake—who has served as a consultant to companies and organizations ranging from JPMorgan and Merrill Lynch to the International Monetary Fund and the World Bank—is the author of two books on pensions, Pension Schemes and Pension Funds in the United Kingdom and Pension Economics and Pension Finance.