State Pension Accounting Estimates and Strong Public Unions

Research output: Contribution to journalArticle

Abstract

Concerns are commonly raised that strong public unions extract generous pension benefits from state governments and are the cause of states' burdensome pension obligations. Prior research (Anzia and Moe 2015) finds evidence supporting such concerns. Consistent with incentives to minimize such perceptions, our findings suggest that state pension plans with stronger public unions select higher discount rates to improve reported funding levels. While riskier asset allocations are used to support the higher discount rates (which equal the expected return on the plan assets), most of the higher rates appear opportunistic. In addition, consistent with a desire to avoid drawing attention to persistent plan underfunding, our evidence indicates that stronger union plans are less likely to select longer amortization periods to recognize pension deficits when underfunding is larger. We do not, however, find evidence for asset smoothing periods being used to delay the recognition of investment losses on plan assets. Together, our findings suggest that stronger union plans take steps to make their pension obligations look less burdensome to the public.

Original languageEnglish (US)
Pages (from-to)1299-1336
Number of pages38
JournalContemporary Accounting Research
Volume36
Issue number3
DOIs
StatePublished - Sep 1 2019

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Pensions
Pension accounting
Assets
Obligation
Discount rate
State government
Asset allocation
Smoothing
Funding
Incentives
Expected returns
Long period
Pension plans

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

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title = "State Pension Accounting Estimates and Strong Public Unions",
abstract = "Concerns are commonly raised that strong public unions extract generous pension benefits from state governments and are the cause of states' burdensome pension obligations. Prior research (Anzia and Moe 2015) finds evidence supporting such concerns. Consistent with incentives to minimize such perceptions, our findings suggest that state pension plans with stronger public unions select higher discount rates to improve reported funding levels. While riskier asset allocations are used to support the higher discount rates (which equal the expected return on the plan assets), most of the higher rates appear opportunistic. In addition, consistent with a desire to avoid drawing attention to persistent plan underfunding, our evidence indicates that stronger union plans are less likely to select longer amortization periods to recognize pension deficits when underfunding is larger. We do not, however, find evidence for asset smoothing periods being used to delay the recognition of investment losses on plan assets. Together, our findings suggest that stronger union plans take steps to make their pension obligations look less burdensome to the public.",
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State Pension Accounting Estimates and Strong Public Unions. / Bonsall, Samuel; Comprix, Joseph; Muller, III, Karl A.

In: Contemporary Accounting Research, Vol. 36, No. 3, 01.09.2019, p. 1299-1336.

Research output: Contribution to journalArticle

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