840 CMR 23: Recognition of Gains and Losses
Summary
840 CMR 23.00 authorizes the actuary to amortize both realized and unrealized investment gains and losses over a five-year period (or another period prescribed by the Commissioner) when determining the retirement system's annual appropriation amounts. A realized gain or loss is defined as the profit or loss on the actual sale or maturity of an investment measured against its book value; an unrealized gain or loss is the difference between the current market value and the value included in system assets at the last previous valuation. This smoothing mechanism helps retirement boards avoid sharp year-to-year swings in required employer contributions caused by short-term market volatility.
Full Text
23.01 Amortization Schedule
The actuary may, in the determination of the appropriation amounts pursuant to M.G.L. c. 32, § 22(3)(d) or, for the state employees' retirement system, the teachers' retirement system and those systems who have elected to adopt M.G.L. c. 32, § 22D, in the determination of a funding schedule, amortize realized gains and losses and unrealized gains and losses over a period of five years or any other period of time as prescribed by the Commissioner.
23.02 Definition of Realized Gains or Losses and Unrealized Gains and Losses
Pursuant to 840 CMR 23.01, a realized gain (loss) is any profit (loss) sustained on the sale or maturity of any investment of any system, due to the amount received being more (less) than the book value on the date of its sale or maturity. An unrealized gain (loss) is any amount by which the market value of any investment required to be valued at its market value pursuant to M.G.L. c. 32, § 21, paragraph (b) is more (less) than the value at which such investment was included in the assets of the system on the date of the last previous valuation.
REGULATORY AUTHORITY: 840 CMR 23.00: M.G.L. c. 7, § 50; c. 32, § 21.