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>

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.

scholarly journals Corporate Pension Plans as Takeover Deterrents

2013 ◽  
Vol 48 (4) ◽  
pp. 1119-1144 ◽  
Author(s):  
João F. Cocco ◽  
Paolo F. Volpin
Keyword(s):  
Pension Plan ◽  
Pension Plans ◽  
Defined Benefit ◽  
Announcement Effects ◽  
Defined Benefit Pension Plan ◽  
Corporate Pension ◽  
Pension Liabilities

AbstractWe use UK data to show that firms that sponsor a defined-benefit pension plan are less likely to be targeted in an acquisition and, conditional on an attempted takeover, they are less likely to be acquired. Our explanation is that the uncertainty in the value of pension liabilities is a source of risk for acquirers of the firm's shares, which works as a takeover deterrent. In support of this explanation we find that these same firms are more likely to use cash when acquiring other firms, and that the announcement of a cash acquisition is associated with positive announcement effects.

Measuring Pension Liabilities under GASB Statement No. 68

2014 ◽  
Vol 28 (3) ◽  
pp. 421-454 ◽  
Author(s):  
John W. Mortimer ◽  
Linda R. Henderson
Keyword(s):  
Financial Reporting ◽  
Risk Index ◽  
Pension Plans ◽  
Low Risk ◽  
Sensitivity Analyses ◽  
Fiscal Year ◽  
Defined Benefit ◽  
Discount Rates ◽  
Risk Rate ◽  
Pension Liabilities

SYNOPSIS While retired government employees clearly depend on public sector defined benefit pension funds, these plans also contribute significantly to U.S. state and national economies. Growing public concern about the funding adequacy of these plans, hard hit by the great recession, raises questions about their future viability. After several years of study, the Governmental Accounting Standards Board (GASB) approved two new standards, GASB 67 and 68, with the goal of substantially improving the accounting for and transparency of financial reporting of state/municipal public employee defined benefit pension plans. GASB 68, the focus of this paper, requires state/municipal governments to calculate and report a net pension liability based on a single discount rate that combines the rate of return on funded plan assets with a low-risk index rate on the unfunded portion of the liability. This paper illustrates the calculation of estimates for GASB 68 reportable net pension liabilities, funded ratios, and single discount rates for 48 fiscal year state employee defined benefit plans by using an innovative valuation model and readily available data. The results show statistically significant increases in reportable net pension liabilities and decreases in the estimated hypothetical GASB 68 funded ratios and single discount rates. Our sensitivity analyses examine the effect of changes in the low-risk rate and time period on these results. We find that reported discount rates of weaker plans approach the low-risk rate, resulting in higher pension liabilities and creating policy incentives to increase risky assets in pension portfolios.

scholarly journals The impact of aggregate mortality risk on defined benefit pension plans

2010 ◽  
Vol 9 (4) ◽  
pp. 481-503 ◽  
Author(s):  
IRENA DUSHI ◽  
LEORA FRIEDBERG ◽  
TONY WEBB
Keyword(s):  
Mortality Risk ◽  
Pension Plans ◽  
Defined Benefit ◽  
Benefit Plan ◽  
Defined Benefit Plans ◽  
The Impact ◽  
Carter Model ◽  
Male Workers ◽  
Defined Benefit Pension Plans

AbstractWe calculate the risk faced by defined benefit plan providers arising from uncertain aggregate mortality – the risk that the average participant will live longer than expected. First, comparing the widely cited Lee–Carter model to industry benchmarks that are commonly employed by plan providers, we show that these benchmarks appear to substantially underestimate longevity. The resultant understatement of liabilities may reach 12.2% for typical male participants in defined benefit plans and may reach 22.4% for male workers aged 22. Next, we consider consequences for plan liabilities if aggregate mortality declines unexpectedly faster than is predicted by a putatively unbiased projection. There is a 5% chance that liabilities of a terminated plan would be 3.1% to 5.3% higher than what is expected, depending on the mix of workers covered.

Retirement and Pensions in American Economic History

2018 ◽  
pp. 354-374
Author(s):  
Robert Clark ◽  
Lee A. Craig
Keyword(s):  
Public Sector ◽  
Private Sector ◽  
Economic History ◽  
Pension Plans ◽  
Federal State ◽  
Defined Benefit ◽  
Retirement Plans ◽  
The Us ◽  
Defined Benefit Plans ◽  
State And Local

The proportion of the US population that survives to retirement age has increased over time, as has the share of the older population that retires. Higher incomes at older ages explain the increase in the incidence of retirement. Pensions provide much of that income. In general, public-sector workers, especially military personnel, were covered by pensions before their private-sector counterparts, and coverage in the public sector remains more widespread, and generous, than it is in the private sector. Public-sector pension plans are more likely to be defined benefit plans than are private-sector plans. Many public-sector employers have promised their employees more in benefits than they have set aside to pay for those benefits. Estimates suggest that the federal, state, and local retirement plans currently in operation are underfunded by as much as $5 trillion.

Financial health and the valuation of corporate pension plans

2019 ◽  
Vol 19 (4) ◽  
pp. 459-490
Author(s):  
Jun Cai ◽  
Miao Luo ◽  
Alan J. Marcus
Keyword(s):  
Property Rights ◽  
Pension Plan ◽  
Pension Plans ◽  
Defined Benefit ◽  
Financial Health ◽  
Valuation Effects ◽  
Defined Benefit Pension Plan ◽  
Corporate Pension ◽  
Standing Question

AbstractWe return to the long-standing question ‘Who owns the assets in a defined benefit pension plan?’ Unlike earlier studies, we condition the market's assessment of implicit property rights on the sponsoring firm's financial health. Valuations of financially strong firms, and those that are strengthening, are more responsive to pension plan funding. For these firms, each extra dollar of net plan assets is valued at between $0.50 and $1.00. In contrast, for weak and weakening firms, valuation effects are statistically indistinguishable from zero. This result is consistent with the higher likelihood that they will renege on their pension obligations.

scholarly journals Portability Rewards And Avoidance Of Longevity Risk: Factors In The Growth Of Defined Contribution Plans

2010 ◽  
Vol 8 (10) ◽  
Author(s):  
Beverley Hollingsworth ◽  
Wei Wang
Keyword(s):  
Investment Strategy ◽  
Longevity Risk ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Insufficient Evidence ◽  
Font Size ◽  
Defined Contribution Plans ◽  
Investment Returns ◽  
Defined Benefit Plans ◽  
The Relationship

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="color: black; font-size: 10pt; mso-themecolor: text1;"><span style="font-family: Times New Roman;">The decline in defined benefit plans has been offset by a significant growth in defined contribution plans. An important consideration in this phenomenon lies in the fact that employees view this shift as a tradeoff between longevity risk and portability rewards. Companies are shifting from defined benefit plans to avoid the longevity risks associated with such plans. On the other hand, in some instances when given the option, employees chose defined contribution plans, due to the associated portability rewards where participants have a choice of rolling over, or transferring plans from former employers.. This paper examined research relevant in assessing factors contributing to growth in defined contribution with particular interest in 401(k)s and the relationship between investment returns, the availability of loans, and investment strategy that may affect plan growth. It is concluded that there is insufficient evidence for assuming a relationship between investment returns, loan availability and investment strategy and the growth of defined contribution plans. </span></span></p>

scholarly journals Firm Choice Of Discount Rate Used In Valuing Pension Obligations

2011 ◽  
Vol 3 (10) ◽  
Author(s):  
Thomas T. Amlie
Keyword(s):  
Pension Plans ◽  
Financial Accounting ◽  
Unique Contribution ◽  
Defined Benefit ◽  
Font Size ◽  
Accounting Standard ◽  
History Of Research ◽  
Reporting Requirement ◽  
History Of ◽  
Defined Benefit Pension Plans

<p class="MsoNormal" style="text-align: justify; margin: 0in 34.2pt 0pt 0.5in;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">This paper examines how the minimum liability reporting requirement for defined benefit pension plans affects the choice of actuarial assumptions. There is a long history of accounting literature which suggests that firms select accounting practices in order to artificially improve the appearance of their operations.<span style="mso-spacerun: yes;">&nbsp; </span>Similarly, there is a history of research regarding the question of how firms select the actuarial assumptions used in accounting for their defined benefit pension plans.<span style="mso-spacerun: yes;">&nbsp; </span>This paper makes a unique contribution to this line of research in that it explicitly examines and focuses on the effect of the &ldquo;minimum liability&rdquo; requirement under Statement of Financial Accounting Standard No. 87.</span></span></p>

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