Truth Or Consequences
David Crane

You can’t make the claim “CalSTRS would record the initial obligation at only $24, 47% less than Berkshire would record the very same obligation” because Berkshire and CalSTRS are not valuing the same $100 obligation. Berkshire is using the Traditional Unit Credit cost method which is valuing the benefits earned as of the valuation date and that they are legally obligated to pay even if that participant terminates employment the following day. CalSTRS is using the Entry Age Normal cost method which includes expected future service and pay and is therefore including benefits that have not actually been earned as of the valuation date. If the participant were to terminate employment the day after the valuation date CalSTRS would not be obligated to pay the full benefit it is valuing.

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