Hostname: page-component-78c5997874-j824f Total loading time: 0 Render date: 2024-11-14T16:58:47.880Z Has data issue: false hasContentIssue false
  • English
  • Français

Predicting cash flows related to defined benefit plan contributions

Published online by Cambridge University Press:  15 February 2010

THOMAS D. DOWDELL JR ,
BONNIE K. KLAMM  and
ROXANNE M. SPINDLE
THOMAS D. DOWDELL JR*
Affiliation:
North Dakota State University, College of Business, Accounting, Finance, and Information Systems Department, Fargo, ND58108-6050 (e-mail: Thomas.Dowdell@ndsu.edu)
BONNIE K. KLAMM
Affiliation:
North Dakota State University, College of Business, Accounting, Finance, and Information Systems Department
ROXANNE M. SPINDLE
Affiliation:
Virginia Commonwealth University, School of Business, Department of Accounting
*
*Corresponding author.
Get access Rights & Permissions [Opens in a new window]

Abstract

Future contributions to defined benefit pension plans are a significant cash flow item that can be difficult to estimate. Funding ratios – pension assets relative to pension liabilities – have long been considered important for estimating cash flows needed for current and future pension contributions (Ballester et al., 1998). However, US GAAP or IFRS funding ratios that companies report in their financial statements may differ from funding ratios used by pension regulators. These regulatory funding ratios may be more useful for predicting future contributions.

We investigate whether US regulatory and GAAP funding ratios are different and whether regulatory funding ratios provide useful information for predicting future contributions. For 3,877 firm years from 1995 through 2002, we observe that regulatory and GAAP funding ratios differ by more than 5% for 73% of our sample. We also find that predictions of future contributions are improved by using regulatory funding ratios in addition to GAAP funding ratios. Our results are relevant to accounting standard setters' ongoing review of pension accounting rules.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 9 , Issue 4 , October 2010 , pp. 505 - 532
Copyright
Copyright © Cambridge University Press 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ballester, M., Fried, D., and Livnat, J. (1998) Pension plan cash flows: Estimation and motives. Journal of Financial Statement Analysis, 3 (Spring 1998): 41–50.Google Scholar
BNA Tax & Accounting (2009) Pension Protection Act of 2006 Weekly Report: Pension act makes sweeping changes to plan funding rules and administration. Tax Management, Inc., The Bureau of National Affairs, Inc. Available at http://www.bnatax.com/tm/pension_protectionact.htm (last accessed 28 September 2009).Google Scholar
Ciesielski, J. T. (2004) The Analyst's Accounting Observer, 13 (9&10), R.G. Associates.Google Scholar
Federal Reserve Board (2008) Federal Reserve Statistical Release: Historical Data. Available at http://federalreserve.gov/releases/h15/data.htm (last accessed September 28, 2009).Google Scholar
Financial Accounting Standards Board (FASB) (1978) Objectives of Financial Reporting by Business Enterprises. Statement of Financial Accounting Concepts No. 1, Norwalk, CT: FASB.Google Scholar
FASB (1980) Disclosure of Pension Information. Statement of Financial Accounting Standards No. 36, Norwalk, CT: FASB.Google Scholar
FASB (1985) Employers' Accounting for Pensions. Statement of Financial Accounting Standards No. 87, Norwalk, CT: FASB.Google Scholar
FASB (1998) Employers' Disclosures about Pensions and Other Postretirement Benefits. Statement of Financial Accounting Standards No. 132, Norwalk, CT: FASB.Google Scholar
FASB (2003) Employers' Disclosures about Pensions and Other Postretirement Benefits. Statement of Financial Accounting Standards No. 132 (revised), Norwalk, CT: FASB.Google Scholar
FASB (2006) Employers' Accounting for Defined Benefit Pension and Other Post Retirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R). Statement of Financial Accounting Standards No. 158, Norwalk, CT: FASB.Google Scholar
FASB (2008a) Proposed FASB Staff Position (FSP FAS 132(R)-a.). Available at http://www.fasb.org/fasb_staff_positions/prop_fsp_fas132r-a.pdf (last accessed 28 September 2009).Google Scholar
FASB (2008b) Postretirement Benefit Plan Asset Disclosures Comment Letter Summary. Available at http://www.fasb.org/project/fas132r_cl_summary.pdf (last accessed 28 September 2009).Google Scholar
General Mills Inc. (2002) Form 10K Filed: 14 August 2002 (period: 25 May 2002).Google Scholar
General Motors Corp. (2006) Form 10K Filed: March 28, 2006 (period: 31 December 2005).Google Scholar
Government Accountability Office (GAO), United States (2005) Report to Congressional Committees on Private Pensions: Government Actions could improve the timeliness and content of Form 5500 pension information. Washington, DC.Google Scholar
Greene, W. H. (1997) Econometric Analysis. Prentice-Hall.Google Scholar
Hewitt Consulting (2003) Available at http://pensionsatwork.ca/english/pdfs/scholarly_works/sw_edition2/hewitt.pdf (last accessed 28 September 2009).Google Scholar
International Accounting Standards Board (IASB) (2004) Employee Benefits. International Accounting Standard 19. London: IASB.Google Scholar
International Accounting Standards Committee (IASC) (1989) Framework for the Preparation and Presentation of Financial Statements. London: IASC.Google Scholar
Ippolito, R. A. (2001) Reversion taxes, contingent benefits, and the decline in pension funding. Journal of Law and Economics, 44: 199–232.CrossRefGoogle Scholar
Jin, L., Merton, R. C., and Bodie, Z. (2006) Do a firm's equity returns reflect the risk of its pension plan? Journal of Financial Economics, 81: 1–26.CrossRefGoogle Scholar
Klamm, B. K. and Spindle, R. M. (2006) Pension expense and plan contributions: accounting standards and tax regulations. Journal of Pension Planning and Compliance, 31–4: 81–95.Google Scholar
McGill, D. M., Brown, K. N., Haley, J. J. and Schieber, S. J. (1996) Fundamentals of Private Pensions. Pension Research Council, The Wharton School of the University of Pennsylvania, Philadelphia: University of Pennsylvania Press.Google Scholar
Munnell, A. and Soto, M. (2004) The outlook for pension contributions and profits in the US. Journal of Pension Economics and Finance, 3(1): 77–97.CrossRefGoogle Scholar
Securities and Exchange Commission (SEC) (2005) Report and recommendations pursuant to Section 401(c) of the Sarbanes-Oxley Act of 2002 on arrangements with off-balance sheet implications, special purpose entities, and transparency of filings by issuers. Office of the Chief Accountant, Office of Economic Analysis, Division of Corporate Finance. Washington, DC. Available at http://www.sec.gov/news/studies/soxoffbalancerpt.pdf (last accessed 12 September 2009).Google Scholar
Securities and Exchange Commission (SEC) (2008) Interactive data to improve financial reporting: proposed rule. Federal Register 70, No. 112, 10 June 2008. Washington, DC: Government Printing Office.Google Scholar
Winklevoss, H. E. (1993) Pension Mathematics with Numerical Illustrations. Pension Research Council and University of Pennsylvania Press.Google Scholar
XBRL eXtensible Business Reporting Language (2008) Available at http://www.xbrl.org/WhatIsXBRL/ (last accessed 28 September 2009).Google Scholar
Yermo, J. (2007) Reforming the Valuation and Funding of Pension Promises: Are Occupational Pension Plans Safer? OECD Working Papers on Insurance and Private Pensions, No. 13, OECD Publishing.CrossRefGoogle Scholar