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.