Universal Journal of Accounting and Finance Vol. 6(3), pp. 83 - 91
DOI: 10.13189/ujaf.2018.060301
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Defined-benefit Pension Plans: Are They as Good as They Seem?


Karen Lightstone 1,*, Tyra McFadden 2, Lucie Kocum 2
1 Department of Accounting, Sobey School of Business, Saint Mary's University, Canada
2 Saint Mary's University, Canada

ABSTRACT

Defined-benefit pension plans were in a worse state than previously reported due to managements' ability to manage the assumptions, according to our study. This empirical paper examined whether managers would have used unreasonable discount rates and assumed rates of return for their pension obligation and assets in order to improve their financial position. We found companies were 4 times more likely to have used an unreasonable discount rate thereby reporting a better funding status than was warranted. We also found, companies were 34 times more likely to have used an unreasonable rate of return for calculating pension expense thereby increasing net income. This paper has implications for employees who have a defined-benefit pension plan; employers who want to be attractive to future employees; and governments that provide retirement supplements for their citizens.

KEYWORDS
Defined-benefit Pension Plans, Actuarial Assumptions, Discount Rate, Pension Asset Rate of Return

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Karen Lightstone , Tyra McFadden , Lucie Kocum , "Defined-benefit Pension Plans: Are They as Good as They Seem?," Universal Journal of Accounting and Finance, Vol. 6, No. 3, pp. 83 - 91, 2018. DOI: 10.13189/ujaf.2018.060301.

(b). APA Format:
Karen Lightstone , Tyra McFadden , Lucie Kocum (2018). Defined-benefit Pension Plans: Are They as Good as They Seem?. Universal Journal of Accounting and Finance, 6(3), 83 - 91. DOI: 10.13189/ujaf.2018.060301.