DB Plan Underfunded - MV or PV?

[BruinKJC]

I’m drawing a blank right now.
If a DB plan is underfunded, it is measured by the market value or present value? In other words, is it underfunded because:
1) PV Assets is less than PV liabilities, or,
2) MV Assets is less than MV liabilities
Thanks.

 

[TooOld4This]

2 – are you in the right forum?

 

[Big Babbu]

According to Schweser it’s the PV of assets < PV Liabilities
But this is a L2 question.

 

[volkovv]

its neither 1 or 2
it is MV Assets < PBO
PBO could be thought of as PV of liabilities

 

[Hiya Turkiya]

I remember this question in Qbank for LIII.
I would say Market value of assets vs PV of Liabilities. Schweser says PV vs PV.

 

[mo34]

Surplus = MV of assets - PV of liability (PBO).

 

[volkovv]

PV Assets doesn’t really makes much sense, your portfolio is worth $100 today what are you taking PV of? you are not comparing assets in the future with liability in the future.
the comparisson is what are your assets worth today (MV of Assets) vs. what is your future pension liability (PBO)

 

[Big Babbu]

Question,
Wouldn’t the PV of assets be the MV of assets?

 

[volkovv]

maybe that is what they assume
but in reality if you are talking about the value of the asset today, you would look at it MV; if you are talking about the value of the asset in the future and want to know what is it worth today, then you would look at PV

 

[BruinKJC]

Thanks everyone for your input.
This is a level III question - I raised it because I encountered a QBank question that mentioned PV or assets and PV of liabilities.
But in Schweser Book 2 Page 50, it mentions MV of assets and MV of liabilities.
If we assume that MV and PV of assets will be the same, how do we determine whether to use PV or MV of liabilities? I would lean towards PV of liabilities, but Schweser says MV:
“Funding shortfall occurs when the market value of the pension plan’s assts is less than the market value of its liabilities (ie, pension obligations).”

 

[asdffdsa]

volkovv Wrote:
——————————————————-
> PV Assets doesn’t really makes much sense, your
> portfolio is worth $100 today what are you taking
> PV of? you are not comparing assets in the future
> with liability in the future.
>
> the comparisson is what are your assets worth
> today (MV of Assets) vs. what is your future
> pension liability (PBO)
good call. the PV of assets it the MV. why would you discount your assets? lol. volkovv is going to rock this test.

 

[Big Babbu]

According to the CFAI text…
“when I say “underfunded”, I mean that the current marked-to-market value of the pension assets is less than the current marked-to-market value of the pension liabilities.”
pg 380 right at the top, volume 2