Defined Benefit Pension Sponsors & Market Prices after Pension Accounting Reform

2011 ◽  
Author(s):  
Robin L. Knowles
Keyword(s):  
Defined Benefit ◽  
Pension Accounting ◽  
Market Prices

Predicting cash flows related to defined benefit plan contributions

2010 ◽  
Vol 9 (4) ◽  
pp. 505-532 ◽  
Author(s):  
THOMAS D. DOWDELL ◽  
BONNIE K. KLAMM ◽  
ROXANNE M. SPINDLE
Keyword(s):  
Cash Flow ◽  
Financial Statements ◽  
Cash Flows ◽  
Pension Plans ◽  
Defined Benefit ◽  
Pension Accounting ◽  
Accounting Standard ◽  
Benefit Plan ◽  
Accounting Rules ◽  
Pension Liabilities

AbstractFuture contributions to defined benefit pension plans are a significant cash flow item that can be difficult to estimate. Funding ratios – pension assets relative to pension liabilities – have long been considered important for estimating cash flows needed for current and future pension contributions (Ballester et al., 1998). However, US GAAP or IFRS funding ratios that companies report in their financial statements may differ from funding ratios used by pension regulators. These regulatory funding ratios may be more useful for predicting future contributions.We investigate whether US regulatory and GAAP funding ratios are different and whether regulatory funding ratios provide useful information for predicting future contributions. For 3,877 firm years from 1995 through 2002, we observe that regulatory and GAAP funding ratios differ by more than 5% for 73% of our sample. We also find that predictions of future contributions are improved by using regulatory funding ratios in addition to GAAP funding ratios. Our results are relevant to accounting standard setters' ongoing review of pension accounting rules.

Smoothing Mechanisms in Defined Benefit Pension Accounting Standards: A Simulation Study*

2009 ◽  
Vol 8 (2) ◽  
pp. 113-145 ◽  
Author(s):  
Cameron Morrill ◽  
Janet Morrill ◽  
Kevin Shand
Keyword(s):  
Simulation Study ◽  
Accounting Standards ◽  
Defined Benefit ◽  
Pension Accounting

scholarly journals Pension Accounting: The Changing Landscape Of Corporate Pension Benefits

2011 ◽  
Vol 9 (10) ◽  
pp. 27
Author(s):  
Terrye A. Stinson ◽  
J. David Ashby ◽  
Kimberly M. Shirey
Keyword(s):  
Pension Plans ◽  
Defined Benefit ◽  
Font Size ◽  
Pension Accounting ◽  
Generally Accepted Accounting Principles ◽  
Fortune 100 ◽  
Defined Benefit Plans ◽  
Corporate Pension ◽  
Pension Benefits ◽  
Pension Liabilities

<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 36.1pt 0pt 0.5in; text-align: justify; mso-pagination: none;" class="MsoTitle"><span style="font-family: Times New Roman;"><span style="color: black; font-size: 10pt; font-weight: normal; mso-themecolor: text1; mso-bidi-font-weight: bold;">This paper</span><span style="color: black; font-size: 10pt; mso-themecolor: text1;"><strong> </strong></span><span style="color: black; font-size: 10pt; font-weight: normal; mso-themecolor: text1; mso-bidi-font-weight: bold;">discusses recent changes in the generally accepted accounting principles related to accounting for defined benefit pension plans. SFAS 158 imposes new rules related to calculating net pension assets or liabilities and increases the likelihood that companies may report net pension liabilities. This paper looks at a sample of Fortune 100 companies to determine the effect of implementing SFAS 158 on the reported funding status for defined benefit plans, and then tracks the reported pension status from 2005 through 2009. Contrary to expected results, the funding status did not deteriorate following implementation of SFAS 158. The ensuing economic meltdown in 2008 and 2009, however, resulted in more companies reporting pension liabilities.</span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>

scholarly journals Footnotes aren't enough: the impact of pension accounting on stock values

2008 ◽  
Vol 7 (3) ◽  
pp. 257-276 ◽  
Author(s):  
JULIA CORONADO ◽  
OLIVIA S. MITCHELL ◽  
STEVEN A. SHARPE ◽  
S. BLAKE NESBITT
Keyword(s):  
Accounting Standards ◽  
Financial Accounting ◽  
Defined Benefit ◽  
Financial Accounting Standards Board ◽  
Pension Accounting ◽  
Current Accounting ◽  
Portfolio Managers ◽  
Pertinent Information ◽  
Current Reform ◽  
The Impact

AbstractRecent research has suggested that companies with defined benefit (DB) pensions are sometimes significantly misvalued by the market. This is because the measures of pension cost and pension net liabilities embedded in financial statements can provide a very misleading picture of pension finances, if taken at face value. The more pertinent information on pension finances is relegated to footnotes, which may not receive much attention from portfolio managers. Dramatic swings in the financial conditions of large DB plans around the turn of the decade focused attention on pension accounting practices, and growing dissatisfaction with current accounting standards has prompted the Financial Accounting Standards Board (FASB) to launch a project revamping DB pension accounting. Arguably, the increased attention should have made investors wise to the informational problems, thereby eliminating systematic mispricing in recent years. We test this proposition and conclude that investors continued to misvalue DB pensions, inducing sizable valuation errors in the stock of many companies. Our findings suggest that FASB's current reform efforts could substantially aid the market's ability to value firms with DB pensions.

Defined benefit pension policies and social responsibility performance: do socially responsible firms walk the talk?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Maretno Agus Harjoto ◽  
Indrarini Laksmana
Keyword(s):  
Social Responsibility ◽  
Pension Benefit ◽  
Defined Benefit ◽  
Socially Responsible ◽  
Pension Accounting ◽  
Content Type ◽  
Corporate Strategies ◽  
Industrial Sectors ◽  
Corporate Social ◽  
The Impact

Purpose This study aims to examine whether socially responsible firms have well-funded employee pension programs and whether corporate social responsibility (CSR) performance is associated with management discretionary choice of pension accounting assumptions. Design/methodology/approach The current study examines the impact of CSR performance on two measures of pension funding and two pension accounting assumptions using regression analysis. This study uses a panel data of 13,099 firms-years across 1,428 US firms from 1992 to 2015. Findings Firms with higher CSR scores report higher pension net assets and are less likely to have underfunded pension than their counterparts. These firms also adopt more responsible (conservative) pension accounting assumptions (i.e. lower discount rate and a higher rate of compensation increase) to estimate pension benefit obligations. Results are stronger for firms that operate in the materials and industrial sectors and for the post-2000 period when underfunded pension has become more prevalent. Firms with higher CSR scores are also less likely to have a pension freeze. Originality/value This study examines the signaling role of CSR by using the signaling theory to explain how senders view the signaling process as a channel to build their reputation and the correspondent inference theory to explain how receivers process and assess the signal. It provides evidence that the signal provided by CSR score is reliable in assessing firms’ commitment to non-investing stakeholders, such as employees, providing valuable information for potential employees making career decisions and for managers considering employee pension as part of corporate strategies to attract high quality workforce. This study provides inputs for public accountants providing assurance services that CSR performance has a significant impact on management reporting choices. This study also provides evidence that CSR could be considered a private provision of public goods that internalize the negative externality of the prevalent underfunded pension phenomenon.

The role of discretionary pension accruals in earnings management

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Su-Jane Hsieh ◽  
Yuli Su ◽  
Chun-Chia Amy Chang
Keyword(s):  
Earnings Management ◽  
Pension Plans ◽  
Defined Benefit ◽  
Pension Accounting ◽  
Estimation Errors ◽  
Content Type ◽  
Significant Difference ◽  
Pension Costs ◽  
The Impact ◽  
Aggregate Measure

PurposeManagers of defined-benefit (DB) firms have considerable discretion in deriving pension costs and flexibility in cash contributions to pension plans. Pension accruals occur when cash contributions differ from pension costs. The manipulable nature of pension costs and cash contributions allows managers of DB firms to manipulate pension accruals to achieve their desired earnings. We study whether DB firms with earnings management attributes (referred to as suspect DB firms) used more discretionary pension accruals (DPA) than non-suspect DB firms, especially after the passage of Sarbanes-Oxley (SOX).Design/methodology/approachThe authors develop an aggregate measure of DPA to capture overall earnings management in pension accounting. They then employ a multivariate regression model to study whether the suspect DB firms engage in more DPA than non-suspect firms and to assess the impact of SOX on DPA for all DB firms and for suspect DB firms.FindingsThe authors find evidence that suspect firms inflate DPA to achieve their earnings goals and also that all DB firms and the suspect firms use more DPA in the post-SOX era compared to the pre-SOX period. In contrast, they observe no significant difference in real activities earnings management (REM) between suspect and non-suspect firms. In addition, neither the entire sample of DB firms nor the suspect firms display a significant change in REM after SOX.Research limitations/implicationsThe samples in the study are limited to firms with defined pension plans; thus, the findings cannot be generalized to all firms. In addition, as in other empirical studies relying on models to estimate earnings management proxies, this study inherits estimation errors from Jones and Roychowdhury's models. Consequently, the impact of these estimation errors cannot be ruled out.Practical implicationsThe empirical findings of the study appear that instead of deterring DB firms from engaging in pension accruals earnings management, enacting the stringent anti-fraud SOX prompts these firms to rely more on accrual-based discretionary pension rather than switch to real activities manipulation to manage earnings.Originality/valueWhile many prior studies focus on the impact of managing individual pension assumptions on earnings, the authors study overall earnings management in pension accounting by developing a model to derive an aggregate measure of pension earnings management.

Managerial Miscalibration and Its Effects on the Auditability of Accounting Estimates: Evidence from Pension Accounting

2019 ◽  
Vol 54 (04) ◽  
pp. 1950016
Author(s):  
Ulrich Menzefricke ◽  
Wally Smieliauskas
Keyword(s):  
Financial Reporting ◽  
Significant Risk ◽  
Accounting Standards ◽  
Financial Statements ◽  
Pension Plans ◽  
Expected Returns ◽  
Defined Benefit ◽  
Pension Accounting ◽  
Accounting Estimates ◽  
Short Run

In this archival study, we report three main findings related to how well pension accounting estimates of practice meet the stated objectives of professional accounting standards. Our evidence on estimated returns in pension accounting used in reporting on defined benefit pension plans in the financial statements indicates the following. First, the financial note disclosures of ranges of estimated returns are miscalibrated and provide low credibility of including either the actual or expected returns. Second, the estimated returns are unreliable estimates of the firms’ actual 10-year averages. Finally, the estimated returns can have significant risk of material misstatement arising from the uncertainty in the estimation process over the short run. The combination of these findings indicates that the estimated returns and related note disclosures on the ranges of the returns used in estimation processes may not be auditable, and may not meet the stated financial reporting objectives of professional accounting standards.

scholarly journals Accounting For Defined Benefit Pension Plans: Is FASB Finally Fulfilling Its 25 Year Old Promise?

2011 ◽  
Vol 5 (8) ◽  
Author(s):  
Brian W. Carpenter ◽  
Daniel P. Mahoney
Keyword(s):  
Financial Reporting ◽  
Balance Sheet ◽  
Accounting Standards ◽  
Pension Plans ◽  
Main Body ◽  
Defined Benefit ◽  
Financial Accounting Standards Board ◽  
Major Step ◽  
Pension Accounting ◽  
Defined Benefit Pensions

With the September 2006 release of Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” the Financial Accounting Standards Board (FASB) has completed the first phase of its ongoing pension accounting project.  The new standard improves the accounting for defined benefit pensions by requiring employers to report the over(under)funded status of their plans as an asset(liability) within the main body of their balance sheet. This requirement represents a significant change from previously-existing pension accounting standards, and represents a major step forward toward the goal of increased transparency in financial reporting.  This article provides a discussion of the very lengthy and controversial history of employer pension accounting, and examines the improvements that have finally resulted from Statement No. 158. Also provided is a discussion of the potential outcome of the second and final phase of the FASB’s pension accounting project

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