Pension plan accounting estimates and the freezing of defined benefit pension plans
AbstractThis study provides evidence that, when "hard" freezing their defined benefit pension plans, employers select downward biased accounting assumptions to exaggerate the economic burden of their benefit plans. Downward biased expected rates of return and discount rates allow managers to increase reported pension expenses and, for discount rates, allow managers to increase reported pension liabilities. We find that prior to the Sarbanes-Oxley Act, both rates are downward biased when firms freeze their plans, whereas after SOX the bias is lower. This finding is consistent with managers opportunistically biasing pension estimates to obtain labor concessions during periods of reduced regulatory scrutiny.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Accounting and Economics.
Volume (Year): 51 (2011)
Issue (Month): 1-2 (February)
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Web page: http://www.elsevier.com/locate/jae
Defined benefit pension plans Pension plan freeze Expected rate of return assumption Discount rate assumption Sarbanes-Oxley Act;
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