The effect of financial constraints and political pressure on the management of public pension plans [An article from: Journal of Accounting and Public Policy]

This digital document is a journal article from Journal of Accounting and Public Policy, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
When government sponsors of public pension plans experience tight fiscal constraints, they manipulate the plans' actuarial assumptions to lower their required contribution. Examining the salary growth assumption, amortization period, and expected rate of return, we find evidence that entities facing financial constraints are more likely to have optimistic accounting assumptions than those which are not. Additionally, we find these plans have a greater propensity for underfunding than plans from less fiscally constrained states. Finally, the problem is further complicated by the political pressure placed on some pension plans. We find evidence that plans subject to political pressure are also more likely to have optimistic accounting assumptions and to be more underfunded than those plans not facing political pressure.