ETF Trends is now VettaFi. Read More >
  • Expert Insights
  • ETF Channels
    • ETF Strategist
    • ETF Building Blocks
    • Active ETF
    • ETF Education
    • Alternatives
    • Fixed Income
    • Beyond Basic Beta
    • Future ETFs
    • China Insights
    • Gold & Silver Investing
    • Climate Insights
    • Innovative ETFs
    • Commodities
    • Institutional Income Strategies
    • Core Strategies
    • Leveraged & Inverse
    • Crypto
    • Managed Futures
    • Disruptive Technology
    • Modern Alpha
    • Dividend
    • Multi-Asset
    • Dual Impact
    • Multi-Factor
    • Emerging Markets
    • Nasdaq Investment Intelligence
    • Energy Infrastructure
    • Portfolio Strategies
    • Entrepreneur ETF
    • Retirement Income
    • Equity ETF
    • Smart Beta
    • ESG
    • Thematic Investing
    • Volatility Resource
  • Webcasts
  • Popular ETFs
    • SPY – SPDR S&P 500 ETF
    • VOO – Vanguard S&P 500 ETF
    • QQQ – Invesco QQQ ETF
    • GLD – SPDR Gold Shares ETF
    • IVV – iShares Core S&P 500 ETF
    • EFA – iShares MSCI EAFE ETF
    • EEM – iShares MSCI Emerging Markets ETF
    • IEMG – iShares Core MSCI Emerging Markets ETF
    • VTI – Vanguard Total Stock Market ETF
    • GDX – VanEck Vectors Gold Miners ETF
    • XLF – Financial Select Sector SPDR Fund
    • VEA – Vanguard FTSE Developed Markets ETF
    • VTV – Vanguard Value ETF
    • Top Gold ETFs
    • Top Oil ETFs
    • Top Commodity ETFs
    • Top Hedge Fund ETFs
    • Top Financials ETFs
    • Top Inverse Equities ETFs
    • Top High Yield Bond ETFs
  • ETF Education
    • First Bitcoin ETF
    • Newsletter
    • New ETFs
    • ETF Ecosystem
    • Education Central
    • ETF Playbook
    • ETFinTwit
  • Videos & Podcasts
    • Videos
    • ETF of the Week
    • ETF Prime Podcast
    • ETF 360 Video Series
    • Podcasts
  • Events
    • Exchange: An ETF Experience
    • ETFs Future-Forward 2021: An iShares Investing Symposium
You are at:Home»Advisor Solutions Channel»Moody’s: Schools Suffer As Unfunded Pension Liabilities Grow
Advisor Solutions Channel

Moody’s: Schools Suffer As Unfunded Pension Liabilities Grow

Value Walk October 30, 2018

by Rupert Hargreaves, ValueWalk

At the end of September, the Board of Governors of the Federal Reserve System pegged unfunded pension liabilities of US state and local governments at more than $4 trillion, a significant increase on the previous figure of $2 trillion.

The new number is the reflection of an accounting change in the way that the Fed considers expectations of future salary growth.

Under the previous model, the Fed relied on an “accrued benefit obligation,” or “ABO,” approach to measuring liabilities. This method used salary growth once it had already occurred, rather than projected salary growth. As pension benefit formulas are typically based on higher average salaries, which tend to occur towards the end of an employees career, ABO accounting can give somewhat of a misleading estimate of future pension obligations.

 

Instead, the Fed has now adopted a “projected benefit obligation,” or “PBO,” approach. This method of accounting recognizes assumed future salary growth, which gives a more accurate reflection of the ultimate pension liability that will arise for each employee.

Accounting change

The most significant difference between ABO and PBO accounting is that the former tends to understate the ultimate pension obligations for each employee throughout their career while PBO accounting gives a smoother, more realistic and less volatile prediction, as the chart from credit rating agency Moody’s below shows.

Unfunded Pension Liabilities

Continue Reading »
RELATED TOPICS
IRSpersonal financetaxtax returnTaxes
X
  • ETF Trends
  • Be Sure to Visit

    • ETF Education Central
    • ETF Ecosystem
    • Glossary
    • Webcasts
    • Video
  • Resources

    • Sign Up For Our Newsletter!
    • Contact Us
    • Sitemap
    • Privacy Policy
    • Terms of Use

    COPYRIGHT ©2005–2022 VETTAFI