Marking Pension Plans to Market

Examining the Implications

Tim V. Eaton, PhD, and Qing L. Burke, PhD, and Po-Chang Chen, PhD

Accounting for defined-benefit pension plans is one of the most complex areas of financial reporting, due to numerous assumptions and multiple-component accounting treatments required for its calculations, recognition, and disclosures. Any changes in assumptions or accounting treatments related to a pension plan could have widespread effects—not only on the plan's funding status, but also on the financial position of the sponsoring employer. Whereas the funding status directly impacts the future of employees and their families as they reach retirement, the earnings effects of pension-related accounting treatments are of significant interest to additional stakeholders, including—but not limited to—equity investors and debt holders.