In 2003, the FASB issued an accounting standard (132R) requiring defined-benefit pension plan sponsors to disclose in the notes the asset allocations of their sponsored pension plans. A motivation for this requirement was to help users evaluate a plan's expected rate of return (ERR) assumption which is supposed to be determined by the allocation of plan assets to risky investments. All else being equal, the higher the assumption, the lower is the pension expense and the higher are reported profits of plan sponsors. We hypothesize that not-for-profits used the ERR to inflate these earnings by reducing pension expenses. Using a dataset of audited financial statements and a difference-in-differences design, we find that not-for-profits significantly decreased their ERRs post-SFAS 132R. The results suggest that opportunistic actuarial assumptions by not-for-profits were reduced following the implementation of SFAS 132R.
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Research Article|
February 17 2021
Biased Actuarial Assumptions and SFAS 132R: The Not-for-Profit Response
Thad Calabrese
Thad Calabrese
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Journal of Governmental & Nonprofit Accounting JOGNA-19-013.
Article history
Received:
August 21 2019
Accepted:
January 13 2021
Citation
Anubhav Gupta, Thad Calabrese; Biased Actuarial Assumptions and SFAS 132R: The Not-for-Profit Response. Journal of Governmental & Nonprofit Accounting 2021; doi: https://doi.org/10.2308/JOGNA-19-013
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