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We examine and compare funding status, actuarial assumptions and asset investment allocations of defined benefit pension plans in the public and private sectors across time, using information as reported under GASB and FASB. We find that pension plans in both sectors are underfunded and that inferences about pension funding in the public sector would be different if pension assets' fair values were required in the computation of funding status. Actuarial assumptions of public employee plans appear to be both more optimistic and less variable than those of private sector plans. Finally, we document that public sector plans allocate invested assets somewhat differently than in the private sector, although our findings do not confirm anecdotal reports of riskier pension investment strategies relative to the private sector.

With the bankruptcy of Enron and the accompanying loss of pension benefits of its employees, pensions have recently received significant press. Accounting for pension plan obligations, for defined benefit plans in particular, requires companies to make assumptions regarding discount rates, projected salary increases, and expected long‐term return on plan assets. Such assumptions, in turn, determine the funding status of the pension plan and the annual pension expense. Higher assumed discount rates reduce the pension obligation, enhance the funding status of the plan, and reduce any lump‐sum payments. Higher expected return on assets reduces the current pension expense. This study investigates the relationship between pension plan assumptions and the funding status of a pension plan. The results reveal that companies with pension plans that are more fully funded assume higher discount rates and expected long‐term return on assets than do companies with less funded plans. The effect of these assumptions is that higher discount rate assumptions lead to better funding status, and higher expected long‐term rates of return on assets partially offset the pension expense impacts of these higher discount rate assumptions. We are doubtful that more funded plans collectively should be assuming higher discount rates and expected long‐term return on plan assets, especially since the actual return on plan assets investigated did not correlate with these assumptions.

The objective of this paper is to examine whether the financial satisfaction (FS) of a state’s residents is affected by the funding ratio of the state’s public pension.

A multilevel hierarchal probit model that control for the funding ratio at the state level and its resident’s FS at the individual level was used to determine how a one-unit increase in funding ratio of a state’s pension plan affected the degree of FS experienced by the individual residing within that state.

The marginal effect from the probit model estimated suggest that a state’s pension plan funding ratio does affect the degree of FS experienced by its residents.

This study only examined data from 2015, thus, future research should consider examining this question via longitude studies, perhaps a survivor model.

States that fail to address their pension plan’s funding ratio may be exposing their residents to negative externality that could potentially influence an individual’s choice to relocate to another state that is not facing similar issues.

To the best of authors’ knowledge, the current body of research has yet to address and/or research the externalities associated with the underfunding of public pension plans throughout the USA. This paper combined two unique sets of publicly available data from all 50 states along with a sample of its residents to examine how public policy associated with state and/or local government pension affect its residents.

The purpose of this study is to explore whether pension plan reporting readability affects earnings volatility. Moreover, as SFAS 158 requires firms to fully recognize their funded status on the balance sheet, the firms’ pension liabilities (inside debts) and financing ability have the corresponding change. This study further investigates whether pension plan reporting readability affects earnings volatility from the SFAS 158 and funded status perspectives.

This study follows Li (2008), Lehavy et al. (2011) and Rennekamp (2012) to use the FOG and SMOG variables as the readability proxies and investigates whether pension plan reporting readability affects earnings volatility from the perspectives of inside debts and SFAS 158 by using a sample of 3,077 American firms from the year 2006 to 2009.

Empirical results of this study show that firms with low readability of pension plan reporting have high earnings volatility, revealing that less readable pension plan reporting increases the assessed variance of a firm’s inside debts, financing flexibility, investment ability and therefore profitability. In addition, the implement of SFAS 158 enhances the effect of pension plan reporting readability on earnings volatility. Moreover, the authors also find that the funded status plays a moderating role for the effect of pension plan reporting readability on earnings volatility. Finally, the results are robust to endogeneity issue.

Earnings stability measures how consistently earnings have been generated over time, and its importance has been acknowledged by most firms. For example, prior literature has documented that manipulating financial reporting to smooth earnings is becoming a business common practice (Burgstahler et al., 2006; Liu and Espahbodi, 2014). The empirical results suggest that pension plan reporting readability is a significant determinant of earnings volatility.

As a practical implication, this study points out that manipulations of the pension reporting readability are not costless. It incurs the costs of earnings instability.

This study indicates that the issuance of SFAS 158 makes firms more likely to engage in pension plan readability manipulation. As a result, it has policy implication that the regulator should consider how the policy change alters the firm financial reporting behavior.

The empirical results suggest that firms may be more likely to engage in obfuscating pension plan disclosure after FASB’s issuance of SFAS 158. This would further increase outside investors’ assessed variance for inside debts and earnings volatilities. When policymakers require firms to recognize their funded status in statement of financial position, they should consider the costs or benefits that the firm manager face and, therefore, how this policy change alter the firm financial reporting behavior.

The purpose of this study is to examine how pension risk shifting can be explained and constrained by debt component in chief executive officer (CEO) compensation and to explore whether a CEO’s relatively large holdings of inside debt to equity compensation would result in a well-funded pension status.

The authors use two-stage least-squares model to control the potential unobserved and uncontrolled firm characteristics that could drive both CEO inside debt determinants and firm pension funding status.

This paper finds a positive relationship between the CEO inside debt ratio and firm funding status. Additional tests show a positive association between the CEO inside debt ratio and financial slack measures and a negative association between this ratio and financial constraint measure. Additional evidence also shows that the CEO inside debt ratio is negatively associated with other contemporaneous investment activities. Overall, the findings suggest that CEO inside debt creates managerial incentives that can affect pension funding decisions and decrease pension risk shifting.

One of the difficulties facing the compensation literature is the unobservable nature of the entire compensation negotiation and design process. Pension funding status is another challenging topic given that management has discretion over the pension assumptions and the calculations themselves are complicated. Therefore, the determinants of pension status used in this paper are not all-inclusive. Although a two-stage least-squares methodology is applied to mitigate endogeneity, it is still possible that an omitted variable problem exists in both cases.

This study provides direct evidence of the executive debt-like compensation’s effect on pension risk-shifting behavior and pension funding decisions and also contributes to the literature that investigates the association between CEO inside debt and firm risk by examining the trade-off between pension funding and other contemporaneous investment activities.

We study the potential effects of pension underfunding on corporate investment, financial constraints and improved employee bonding using 10 Pacific-Basin countries (including the United States, Australia, and eight Asian countries) at heterogeneous economic development stages and different regulatory environments. We document that corporate pensions are significantly underfunded in most countries of our sample in the period of 2001–2017, when interest rates were ultralow in most countries. In addition, firms from countries with stronger employee protection and more generous retirement benefits tend to show higher levels of underfunding in their defined benefit (DB) pension plans. To the extent of pension underfunding imposing constraints on corporate investment, we find that firms in these countries can face more constraints on investment when their pension is underfunded.

The purpose of this paper is to examine how investor sentiment, proxied by Michigan consumer confidence index, affects the choice of defined benefit pension plan discount rates.

The authors use multivariate analysis to test our hypotheses. The dependent variable is defined pension plan discount rate and the testing variables are investor sentiment and a dummy variable representing underfunded status.

The authors find a negative and significant relation between investor sentiment and pension plan discount rate. During high (low) sentiment periods, pension discount rate tends to be adjusted downward (upward) discretionarily. Further analysis indicates the relationship between pension discount rate and investor sentiment is more pronounced for firms with underfunded pension plans. The results can be explained by limited attention effects, capital budgeting strategy and earning smoothing.

The empirical results of this study have important implications for corporate governance and regulation. Specifically, the results suggest the need for increased attention from boards of directors, auditors and regulators to reported pension liabilities, especially during periods of high investor sentiment when pension plan sponsors are more likely to adjust down pension discount rate and accordingly to increase pension liabilities.

The paper contributes to the extant literature by identifying investor sentiment as a new incentive of pension discount rate manipulation. The empirical results of this study also have important implications for corporate governance and regulation.

This chapter explores the advantages (for large investors) of directly owning productive assets, compared with indirect ownership through stock in corporations. Significant factors are agency costs and recent changes in the tax and regulatory environment. Recent corporate scandals have led to legislative and regulatory responses that significantly increase the monitoring costs and other burdens of becoming or remaining a public corporation. As a result, there has been a substantial increase in going-private transactions, particularly among smaller public companies. Acquisitions and minority equity positions that allow large corporations to join with smaller companies have also increased. The pressures to go private are not entirely new, however. This chapter, reflecting collaboration by professors of finance and business law, traces the legal concept that the corporation is an entity separate and apart from its owners, showing how the legal status of corporations hinders resolution of conflicts among the parties to the enterprise. Thus, there have long been fundamental flaws inherent in the corporation as the form of organization for certain activities. The current wave of Sarbanes–Oxley restructuring via private equity firms is part of a significant increase in direct ownership of major assets by institutional investors. Direct ownership prevents management expropriation of resources, and is preferable to corporate ownership whenever other alternatives for indemnification or liability limitation are available (such as insurance, limited partnerships, limited liability companies, etc.). Finally, the renewal of direct ownership is not a radical shift, but a return to long-established tradition in the organization of business activities.

This paper explores the advantages (for large investors) of directly owning productive assets, compared with indirect ownership through stock in corporations. Significant factors are agency costs and recent changes in the tax and regulatory environment. Recent corporate scandals have led to legislative and regulatory responses that significantly increase the monitoring costs and other burdens of becoming or remaining a public corporation. As a result, there has been a substantial increase in going-private transactions, particularly among smaller public companies. However, the pressures to go private are not entirely new. We trace the legal concept that the corporation is an entity separate and apart from its owners, showing how the legal status of corporations hinders resolution of conflicts among the parties to the enterprise. Thus, there have long been fundamental flaws inherent in the corporation as the form of organization for certain activities. Direct ownership of major assets by investors prevents future expropriation of resources, and is preferable to corporate ownership whenever other alternatives for indemnification or liability limitation are available (such as insurance, limited partnerships, limited liability companies, etc.). Finally, the renewal of direct ownership is not a radical shift, but a return to long-established tradition in the organization of business activities.

The purpose of this article is to examine changing employer strategies in dealing with organized labor through Boeing’s negotiations with its local Puget Sound, Washington-based District 751 of the International Association of Machinists and the district’s international parent.

Considers factors including leveraging the slow growth of the US economy and the resulting job-security issues among US workers generally and Boeing workers in particular, along with the divided age composition of Boeing’s workforce to achieve market-share competitiveness with Boeing’s chief global rival, Europe-based Airbus Industries.

Advises that there is no substitute for early strategic analysis of bargaining goals and strategies, particularly with respect to economic bargaining.

Advances the view that a well-defined bargaining plan is the most likely key to success in any set of union collective bargaining agreement negotiations.

Considers the tensions that may exist between younger members of the workforce, whose priority is likely to be job security, and older members, who may be more concerned about their pensions.

Presents the ongoing story of collective bargaining agreement negotiations at Boeing.