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Pension Costs (pension + cost)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

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

ACCOUNTING PERSPECTIVES, Issue 2 2009
Cameron Morrill
ABSTRACT The accounting for defined benefit (DB) pension plans is complex and varies significantly across jurisdictions despite recent international convergence efforts. Pension costs are significant, and many worry that unfavorable accounting treatment could lead companies to terminate DB plans, a result that would have important social implications. A key difference in accounting standards relates to whether and how the effects of fluctuations in market and demographic variables on reported pension cost are "smoothed". Critics argue that smoothing mechanisms lead to incomprehensible accounting information and induce managers to make dysfunctional decisions. Furthermore, the effectiveness of these mechanisms may vary. We use simulated data to test the volatility, representational faithfulness, and predictive ability of pension accounting numbers under Canadian, British, and international standards (IFRS). We find that smoothed pension expense is less volatile, more predictive of future expense, and more closely associated with contemporaneous funding than is "unsmoothed" pension expense. The corridor method and market-related value approaches allowed under Canadian GAAP have virtually no smoothing effect incremental to the amortization of actuarial gains and losses. The pension accrual or deferred asset is highly correlated with the pension plan deficit/surplus. Our findings complement existing, primarily archival, pension accounting research and could provide guidance to standard-setters. [source]

The Many Challenges of Pension Accounting

ACCOUNTING PERSPECTIVES, Issue 2 2009
Thomas H. Beechy
ABSTRACT Accounting for defined benefit pension plans has long been a major issue in accounting. Standard-setters are grappling with revisions to pension accounting standards, and much change has already occurred in the United Kingdom. This paper identifies and discusses most of the major issues that standard-setters must confront in developing new approaches to financial reporting for pensions. Key issues concern how to report the impact of changes in assumptions, how to recognize pension costs on the balance sheet and income statement, and how to reconcile the differences between accountants' and actuaries' approaches to pensions. Current standards assume that accounting estimates are independent of actuarial assumptions, and yet require a direct comparison of the accounting liability with the pension plan assets, when in fact they are incompatible measures based on differing assumptions and differing methodologies. As well, accounting has been complicit in managers' wishes to hide the volatility inherent in a pension plan investment strategy that focuses on higher-risk equities to fund estimated monetary liabilities that have been discounted at low-risk interest rates. Drawing on studies and research done largely in Europe, this paper attempts to consolidate some of the current thinking on the topic and to propose some preferred approaches to dealing with the problems of pension accounting. [source]

Controlling pension costs: Why is it so difficult?

JOURNAL OF CORPORATE ACCOUNTING & FINANCE, Issue 3 2006
Jon Duchac
Companies continue to struggle with the ballooning costs of defined pension benefit plans. The authors explain why this is such a tough task. And although regulatory reforms may be coming soon, they could have unanticipated consequences,making it even more difficult to manage costs. © 2006 Wiley Periodicals, Inc. [source]

Crises in Public Pension Programmes in OECD: What are the Reform Options?

THE ECONOMIC JOURNAL, Issue 461 2000
Richard Disney
The paper examines projections of the fiscal liabilities of public pension programmes in a number of OECD countries. It investigates the reasons why many countries have built up such liabilities in the past and critically appraises the future projections of pension costs. It examines the strengths and weaknesses of four reform options which are currently being discussed and implemented in various countries. [source]