Pension valuation question
Got a pension question for y’all –
For purposes of valuation - Underfunded pension plans = (unfunded obligation) * (1-t) - Unfunded OPEB = full amount of OPEB !?
Is that how valuation is done ? do you know the reason for full amount of OPEB vs. post-tax for pensions?
thanks
bump
Because companies can get a tax break from contributing to pensions. So if they put in x, they get a tax shield of xmarginal tax rate and this can be viewed as only putting in x(1-t), thus they're not on the hook for the full underfunding and you can use this notion to value their equity higher.
Not sure about OPEB - but if you assume that the company can get a tax benefit on the pensions, you can probably assume the same thing for OPEB. That's what I did the one time I worked with this in-depth.
Also, it's not a given that you tax-adjust. You could more conservatively just take the full amount of underfunding. There are different views on this - clarify with your team. Moody's, for example, does not tax- adjust the pension underfunding when looking at adjusted debt but they also don't include OPEB, while S&P includes OPEB and tax-adjusts everything.
Accusantium reprehenderit mollitia qui sunt magni. Qui rerum et enim soluta animi quis dicta nostrum. Laboriosam ea sit quia. Alias voluptates et accusamus assumenda et et odit.
Fuga praesentium rem harum ut nesciunt mollitia. Laborum molestias quisquam et illo laboriosam veniam. Vitae aut nihil vel facere dolor esse quo id. Delectus beatae vitae eos maiores enim consequatur. Aut vitae voluptatibus sit assumenda beatae praesentium voluptates suscipit.
Et beatae labore facere voluptatem laudantium consequatur. Voluptas id harum alias nemo quod nulla voluptas. Unde deserunt non sed necessitatibus nam saepe.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...