Defined-benefit Pension Plans: Are They as Good as They Seem?

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.

Adequacy, Affordability and Sustainability of Pensions in Higher Learning Institutions in Zambia

“…International Actuarial Association (2018) states that the benefits are defined and guaranteed with no possibility for variation by either the employer or the governing body. According to Lightstone et al (2018), private players primarily perceive DB plans as a promise with a sponsor. That promise is a financial obligation that is the sponsor's responsibility to fulfill.…”