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This study draws upon the behavioral agency model and the concept of socioemotional wealth to investigate how family firms' employee pension underfunding decisions differ from those of non-family firms. We explore how these differences are influenced by financial distress, generational stage, and whether the firm is eponymous. We test our hypotheses using data from 452 US firms over an eleven-year period. Our results suggest that family firms are less likely to underfund pensions, but this effect is attenuated in later generational ownership stages and in non-eponymous firms. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This case study examines the challenges faced in practice when determining equity value and share price for firms characterized by complexities including dilutive securities, equity investments, noncontrolling interests, leases, and underfunded pension plans. Coca-Cola Company is used as a case study to demonstrate how to accurately account for such items when deriving equity value and implied share price from enterprise value. [ABSTRACT FROM AUTHOR]

Unionized workers are entitled to special treatment in bankruptcy court that can be detrimental to other corporate stakeholders, with unsecured creditors standing to lose the most. Using data on union elections, we employ a regression discontinuity design to identify the effect of worker unionization on bondholders in bankruptcy states. Closely won union elections lead to significant bond value losses, especially when firms approach bankruptcy, have underfunded pension plans, and operate in non-RTW law states. Unionization is associated with longer, more convoluted, and costlier bankruptcy court proceedings. Unions depress bondholders' recovery values as they are assigned seats on creditors' committees. [ABSTRACT FROM AUTHOR]

The unique regulation of U.S. public pension funds links their liability discount rate to the expected return on assets, which gives them incentives to invest more in risky assets in order to report a better funding status. Comparing public and private pension funds in the United States, Canada, and Europe, we find that U.S. public pension funds act on their regulatory incentives. U.S. public pension funds with a higher level of underfunding per participant, as well as funds with more politicians and elected plan participants serving on the board, take more risk and use higher discount rates. The increased risk-taking by U.S. public funds is negatively related to their performance. [ABSTRACT FROM AUTHOR]

Purpose: The objective of this paper is to examine whether the financial satisfaction (FS) of a state's residents is affected by the funding ratio of the state's public pension. Design/methodology/approach: A multilevel hierarchal probit model that control for the funding ratio at the state level and its resident's FS at the individual level was used to determine how a one-unit increase in funding ratio of a state's pension plan affected the degree of FS experienced by the individual residing within that state. Findings: The marginal effect from the probit model estimated suggest that a state's pension plan funding ratio does affect the degree of FS experienced by its residents. Research limitations/implications: This study only examined data from 2015, thus, future research should consider examining this question via longitude studies, perhaps a survivor model. Practical implications: States that fail to address their pension plan's funding ratio may be exposing their residents to negative externality that could potentially influence an individual's choice to relocate to another state that is not facing similar issues. Originality/value: To the best of authors' knowledge, the current body of research has yet to address and/or research the externalities associated with the underfunding of public pension plans throughout the USA. This paper combined two unique sets of publicly available data from all 50 states along with a sample of its residents to examine how public policy associated with state and/or local government pension affect its residents. [ABSTRACT FROM AUTHOR]

Measuring the extent to which a firm is financially constrained is critical in assessing capital structure. Extant measures of financial constraints focus on macro firm characteristics such as age and size, variables highly correlated with other firm attributes. We parse 10-K disclosures filed with the U.S. Securities and Exchange Commission (SEC) using a unique lexicon based on constraining words. We find that the frequency of constraining words exhibits very low correlation with traditional measures of financial constraints and predicts subsequent liquidity events, such as dividend omissions or increases, equity recycling, and underfunded pensions, better than widely used financial constraint indexes. [ABSTRACT FROM PUBLISHER]

The paper argues that the market significantly overvalues firms with severely underfunded pension plans. These companies earn lower stock returns than firms with healthier pension plans for at least 5 years after the first emergence of the underfunding. The low returns are not explained by risk, price momentum, earnings momentum, or accruals. Further, the evidence suggests that investors do not anticipate the impact of the pension liability on future earnings, and they are surprised when the negative implications of underfunding ultimately materialize. Finally, underfunded firms have poor operating performance, and they earn low returns, although they are value companies. [ABSTRACT FROM AUTHOR]

This study examines the fiscal stability of Pennsylvania public school districts within the context of underfunded pension and charter school mandates. Results indicate that mandated pension and charter school expenditures are negatively associated with unassigned fund balances during the period 2011-17. Differential effects are identified across years and locale. While pension expenditures have negative effects on fund balances beginning 2012-13, districts located within towns, rural areas, and suburbs experience negative effects related to charter school expenditures. Policy issues include tax-shifting, public financing of education, access to bond financing, as well as institutional sustainability. [ABSTRACT FROM AUTHOR]

This study assesses the role that underfunded pensions have on security returns. A twelve year analysis (2006-2017) is conducted which includes analyzing 364 U.S. firms and 262 EU firms with underfunded pension plans. Overall results indicate that, with respect to security prices, when firms are known to have underfunded pension plans, European firms appear to be more cash flow sensitive while U.S. firms appear to be more accounting earnings sensitive. These findings may be the result of institutional and structural differences among nations. On the other hand, it is noteworthy to understand that differences in cash flow presentation and recognition exist between the nations and their standard-setters. These differences have the potential of contributing to how investors make stock purchase decisions and therefore must be considered as the transitional phase between IFRS and GAAP continues. [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this paper is to examine how investor sentiment, proxied by Michigan consumer confidence index, affects the choice of defined benefit pension plan discount rates. Design/methodology/approach: The authors use multivariate analysis to test our hypotheses. The dependent variable is defined pension plan discount rate and the testing variables are investor sentiment and a dummy variable representing underfunded status. Findings: The authors find a negative and significant relation between investor sentiment and pension plan discount rate. During high (low) sentiment periods, pension discount rate tends to be adjusted downward (upward) discretionarily. Further analysis indicates the relationship between pension discount rate and investor sentiment is more pronounced for firms with underfunded pension plans. The results can be explained by limited attention effects, capital budgeting strategy and earning smoothing. Practical implications: The empirical results of this study have important implications for corporate governance and regulation. Specifically, the results suggest the need for increased attention from boards of directors, auditors and regulators to reported pension liabilities, especially during periods of high investor sentiment when pension plan sponsors are more likely to adjust down pension discount rate and accordingly to increase pension liabilities. Originality/value: The paper contributes to the extant literature by identifying investor sentiment as a new incentive of pension discount rate manipulation. The empirical results of this study also have important implications for corporate governance and regulation. [ABSTRACT FROM AUTHOR]

The 30‐year U.S. swap spreads have been negative since September 2008. We offer a novel explanation for this persistent anomaly. Through an illustrative model, we show that underfunded pension plans optimally use swaps for duration hedging. Combined with dealer banks' balance sheet constraints, this demand can drive swap spreads to become negative. Empirically, we construct a measure of the aggregate funding status of defined benefit pension plans and show that this measure helps explain 30‐year swap spreads. We find a similar link between pension funds' underfunding and swap spreads for two other regions. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

With unfunded pension liabilities totaling in excess of $2 trillion, publicly traded firms face a "fiscal cliff" of their own when it comes to the effect that these liabilities in turn have on firm bottom lines. With regard to assessing the effect that these pension liabilities have on stock prices, scant research exists. Extant studies find that unfunded pension liabilities increase riskiness of firms, thus placing pressure on firms' ability to generate needed future capitalization. Most research is silent with respect to the direct effect that pension liabilities have on major industries. This study assesses the role that pensions have on security returns. A twenty year analysis (1996-2015) is conducted which includes analyzing 1,907 firms with unfunded/underfunded pension plans and 710 firms with fully funded pension plans. Findings suggest that when a firm maintains an underfunded pension plan, that there exists a significant negative correlation between accounting earnings and stock return. When, however, a firm maintains a fully funded pension plan, there is significant positive correlation between accounting earnings and stock return. The result is not good news for pension fund managers of firms with unfunded/underfunded pension plans. In addition, an industry analysis was performed of six major industries for the underfunded pension plan firms. Findings suggest that the industrials and utilities industries contain the highest significantly negative correlation with accounting earnings and stock prices. This indicates that firms in these two industries should be particularly concerned about unfunded or underfunded pension plans because of the effect that they may have on accounting earnings, investor reaction, and thus stock price. [ABSTRACT FROM AUTHOR]

Fiscal stress pressures state legislators to either raise taxes or cut spending, but public pensions provide a vehicle to postpone tax increases and maintain current spending. I estimate that states cut their pension contributions at seven times the rate of other spending in response to fiscal stress. The cumulative impact of state undercontributions due to fiscal stress explains about 4% of mid-2008 actuarial underfunding. States not paying actuarially required contributions for reasons other than fiscal stress explains an additional quarter of underfunding. As investment returns explain little underfunding, much underfunding appears due to insufficient employee and actuarially required government contributions to keep up with growing pension liabilities. [ABSTRACT FROM PUBLISHER]

We investigate whether the flexibility in making contributions towards defined benefit pension plans sponsored by firms in the United States allows managers to save cash and increase investments. Firms invest more at higher levels of pension deficit, defined as pension benefit obligations less pension assets, and scaled by total assets. At the median level (90th percentile) of pension deficit, investments increase by 6.7 cents (9.4 cents) for every dollar increase in cash. As the pension deficit increases, firms deviate more from the predicted level of investment. These findings suggest that the incremental investments are more likely to represent overinvestment by managers. Our results are robust to alternative model specifications and endogeneity concerns that may arise if investments are jointly determined with the funding policy of pension plans and the firm's target cash level. We repeat our main analysis for the United Kingdom and also find for that country that, at a fixed cash level, total investment increases as pension deficit increases. [ABSTRACT FROM AUTHOR]

This study examines the role of board composition in the determination of pension policies. The results suggest that the proportion of outside directors serving on the board is positively related with pension plan funding levels. In addition, the proportion of outside directors mitigates the relation between financial distress risk and plan underfunding. Last, as firms approach distress, boards with a greater proportion of outside directors tend to allocate a lower fraction of plan assets to riskier securities. Together, our findings suggest that outside directors are mindful of their obligations toward pension plan beneficiaries. [ABSTRACT FROM AUTHOR]

Israel's pension system has changed drastically since the mid- 1990s, when it faced an underfunding crisis. The transition to defined contribution plans permitted a wider range of investments and shifted the burden of income-replacement from the government to the individual pension plan participant. This shift required increased protections for pension plans, which led to the creation of the Capital Market Insurance and Savings Division (CMISD) to oversee and regulate pension management entities. In comparison to post-Soviet nations that experienced similar transitions from socialist to market economies, Israel's pension system is significantly healthier and more regulated. However, the CMISD must enact measures to oversee the transition of funds from "old" to "new" pensions, reduce or eliminate the mandatory 30% investment in government bonds, and increase the accountability requirements for pension management entities and the organization itself. [ABSTRACT FROM AUTHOR]

The article discusses Seoyoung Kim and co-authors Sanjiv Das and Meir Statman's significant contribution toward understanding risks and remedies in challenging investment environments. Topics discussed include the focus of Liability Directed Investing-Expected Shortfall (LDI-ES) on the effective use of portfolio rebalancing and the 4 ways of addressing the problem of underfunding such plan sponsors providing cash infusions or the reduction of benefits that were promised to plan beneficiaries.

Pension underfunding in the public sector has received considerable attention recently and is often cited as the next looming crisis. The majority of recent research has focused on appropriately measuring the underfunding. In this paper, we employ a political economy framework to show that increases in partisan polarization and electoral uncertainty lead to greater underfunding. Using an unbalanced panel of individual pension plans, we find robust empirical evidence that higher legislative turnover rates, more electoral competition, and term limits all lead to more pension underfunding. The political environments of state and local governments play a pivotal role in pension underfunding. [ABSTRACT FROM AUTHOR]

Inadequate contributions are one factor behind the gap between pension assets and benefit liabilities. Each year, many states fail to meet their required pension contribution while others consistently meet or exceed their required amount. This study seeks to identify the factors that shape actual pension contributions across the states. Results suggest that states with smaller long-term funding gaps are more likely to fund required contributions. Legislative professionalism and constitutional collective bargaining privileges reduce annual funding. The effect of partisan and institutional traits was sensitive to methodology. Revenue changes and balanced budget requirements had no significant effect on pension contributions. These results suggest a number of reform avenues, including constitutional, institutional, and programmatic changes of varying political feasibility. [ABSTRACT FROM PUBLISHER]

States' unfunded pension obligations to their current and retired employees have exploded in recent years to levels that are estimated to be between $750 billion and $4.4 trillion. In theory, this massive debt should have implications for states' ability to meet their financial obligations and a measurable impact on funding costs. Yet we find limited evidence that municipal bond markets are pricing the risks to states' fiscal health arising from these large obligations. Although yield spreads have become more sensitive to pension underfunding since the financial crisis, the economic effect is small. [ABSTRACT FROM AUTHOR]

Defined benefit (DB) pension plans of both U.S. and European companies are significantly underfunded because of the low interest rate environment and prior decisions to invest heavily in equities. Additional contributions and the recovery of stock markets since the end of the crisis have helped a bit but pension underfunding remains significant. Pension underfunding has substantial corporate finance implications. The authors show that companies with large pension deficits have historically delivered weaker share price performance than their peers and also trade at lower valuation multiples. Large deficits also reduce financial flexibility, increase financial risk, particularly in downside economic scenarios, and contribute to greater stock price volatility and a higher cost of capital. The authors argue that the optimal approach to managing DB pension risks relates to the risk tolerance of specific companies and their short and long-term strategic and financial priorities. Financial executives should consider the follow pension strategies: Voluntary Pension Contributions: Funding the pension gap by issuing new debt or equity can provide valuation and capital structure benefits-and in many cases is both NPV-positive and EPS-accretive. The authors show that investors have reacted favorably to both debt- and equity-financed contributions., Plan de-risking: Shifting the pension plan's assets from equity to fixed income has become an increasingly popular approach. The primary purpose of pension assets is to fund pension liabilities while limiting risk to the operating company. The pension plan should not be viewed or run as a profit center., Plan Restructuring: Companies should also consider alternatives such as terminating and freezing plans, paying lump sums, and changing accounting reporting. [ABSTRACT FROM AUTHOR]

This study reviews the funding status of state-administered pension plans and their impact on state credit quality. As the fund ratio (actuarial assets/actuarial accrued liability) of state-administered pension plans decreases, states are more likely assigned a lower rating. Moreover, rating outlooks are sensitive to the fund ratio, especially for migration between stable and negative outlooks for states with lower fund ratios. These results are a timely pretest to the 2013/2014 implementation of GASB Statements No. 67 and 68, serving as a benchmark to assess whether new reporting requirements will yield information to alter the market's response to unfunded pension liabilities. [ABSTRACT FROM AUTHOR]

The majority of pension plans today are underfunded, uncertain about the market, the economic and regulatory environment and searching for a more stable approach to meeting their pension benefit obligations. For plan sponsors who want to adopt a more structured approach to asset–liability management, adopting a glide path framework that gradually de-risks their investment portfolio as funded status improves has become an attractive way to move towards their funding goal. To that end, this article describes a multi-objective optimization methodology known as the goal attainment method, an approach which can accommodate the simultaneous optimization of distinct objective functions, and shows how it can be used to construct glide path strategies for asset–liability applications. [ABSTRACT FROM AUTHOR]

The article focuses on funding status of defined benefit pension plans (DBPP) for employees of oil and gas companies. It states that most companies in this sector are underfunded which make them unable to provide promised payments to their employees and further suggests investors to examine the funded status of DBPP of the companies. It finally states that the companies that are not planning their retirement plans could face consequences like inadequate cash flow and shrinking investments.

Pension benefit guarantees have been introduced in several countries to protect private plan members from the loss of income associated with the termination of an underfunded plan. Most such schemes face financial difficulty. Consequently, policy reforms are being contemplated. Economic theory suggests that such schemes will suffer moral hazard problems. We test a specific theoretical prediction: insured plans will invest more heavily in risky assets. Our test exploits policy differences across Canadian jurisdictions. We find that insured plans invest about 5% more in equities than do similar plans without benefit guarantees. [ABSTRACT FROM AUTHOR]

State and local retirement plans are underfunded by trillions of dollars, at a time when many states are facing decreased revenues and increased social needs. As a result, many states are actively considering how best to address the problem of state and local pension plan underfunding given their limited resources. In many states, however, courts have held that the statutes establishing state retirement systems created contracts between the state and employees that prohibit the state from making any detrimental changes to the benefits provided to current employees within such systems, even on a prospective basis. This Article examines the development of such a rule in the California courts, a rule that has been widely influential in this area of law, as evidenced by the fact that courts in twelve other states have followed the California Supreme Court's holdings. This Article demonstrates that by holding that benefits not yet earned are contractually protected, without explaining the basis for finding that such a contract exists, California courts have improperly infringed on legislative power and have fashioned a rule that is inconsistent with both contract and economic theory. [ABSTRACT FROM AUTHOR]

The article discusses the financial risks facing the private-sector pension provider Pension Benefit Guaranty Corporation (PBGC). The author contends that U.S. government policymakers must chose whether employer-provided pensions should be insured by a single employers or whether the U.S government should help protect the PBGC from financial risk. PBGC's deficit and the reasons for it, including an alleged inaccurate measurement of pension plan assets and liabilities, unfunded pension benefit increases and the levying of inadequate premiums for PBGC pensions, are presented.