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Pension plan accounting estimates and the freezing of defined benefit pension plans

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  • Comprix, Joseph
  • Muller, Karl A.

Abstract

This 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.

Suggested Citation

  • Comprix, Joseph & Muller, Karl A., 2011. "Pension plan accounting estimates and the freezing of defined benefit pension plans," Journal of Accounting and Economics, Elsevier, vol. 51(1), pages 115-133.
    • Handle: RePEc:eee:jaecon:v:51:y:2011:i:1:p:115-133
    DOI: 10.1016/j.jacceco.2010.06.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Defined benefit pension plans; Pension plan freeze; Expected rate of return assumption; Discount rate assumption; Sarbanes-Oxley Act;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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