Applying the new Financial Accounting Standards 157 asset valuation rules is proving to be a nightmare for pension plan sponsors and administrators.

The SPARK Institute, Simsbury, Conn., a group that represents large retirement services providers, makes that argument in a new discussion of the practical effects of the FAS 157 rules on the pension plan community.

FAS 157 governs the classification of securities, and how holders of the securities should go about handling valuations of securities caught up in severe market turmoil.

In some cases, when holders are responsible for calculating the fair value of securities, they should use the market value to estimate the securities’ fair value, according to the Financial Accounting Standards Board, Norwalk, Conn., the entity that adopted FAS 157. In other cases, when the market seems to be affected by a severe but temporary disruption, holders can use other methods to value the securities, FASB says.

In the real world, retirement plan sponsors, record keepers, investment providers and auditors are confused about how to apply FAS 157 to retirement plan investments, according to Larry Goldbrum, general counsel of the SPARK Institute.

It is not always clear how to determine which method should be used to value which assets, and the rules governing responsibility for asset classification are also causing headaches, Goldbrum says.

Under the accounting rules, plan sponsors are responsible for attesting that plan assts have been reported at fair value, but many sponsors feel that they lack the expertise to classify plan assets, Goldbrum says.

Plan sponsors want the plan record keepers to take responsibility for classifying plan investments, but recordkeepers believe that task is the sponsors’ job, Goldbrum says.

The Spark Institute has posted the discussion of the issue here.