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State Pension Accounting Estimates and Strong Public Unions†

Author

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  • Samuel B. Bonsall
  • Joseph Comprix
  • Karl A. Muller

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. Estimations comptables des régimes de retraite publics et puissants syndicats de fonctionnaires La possibilité que les puissants syndicats de fonctionnaires tirent des régimes de retraite étatiques de généreuses prestations et imposent ainsi aux Administrations de lourdes obligations soulève des préoccupations récurrentes. De précédents chercheurs (Anzia et Moe, 2015) ont relevé des données qui justifient cette inquiétude. En accord avec les arguments visant à minimiser ces perceptions, les observations des auteurs semblent indiquer que les régimes de retraite étatiques associés à des syndicats de fonctionnaires plus puissants choisissent des taux d'actualisation plus élevés afin d'améliorer les niveaux de capitalisation déclarés des régimes. Bien que ces régimes optent pour des répartitions d'actifs plus risquées à l'appui de leurs taux d'actualisation supérieurs (équivalents au rendement espéré des actifs du régime), la plupart de ces taux semblent opportunistes. De plus, afin d’éviter d'attirer l'attention sur leur sous‐capitalisation chronique, les régimes associés à des syndicats plus puissants sont moins susceptibles, selon les données recueillies par les auteurs, de constater leurs déficits sur des périodes d'amortissement plus longues. Les auteurs ne relèvent cependant rien qui permettrait de conclure à l'utilisation de périodes de lissage des actifs pour reporter la constatation des pertes au titre de placements relativement aux actifs du régime. Prises dans leur ensemble, les constatations des auteurs laissent croire que les régimes associés à des syndicats plus puissants prennent des dispositions pour faire en sorte que leurs obligations au titre du régime paraissent moins lourdes aux yeux du public.

Suggested Citation

  • Samuel B. Bonsall & Joseph Comprix & Karl A. Muller, 2019. "State Pension Accounting Estimates and Strong Public Unions†," Contemporary Accounting Research, John Wiley & Sons, vol. 36(3), pages 1299-1336, September.
  • Handle: RePEc:wly:coacre:v:36:y:2019:i:3:p:1299-1336
    DOI: 10.1111/1911-3846.12476
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    References listed on IDEAS

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    4. DeAngelo, H,, 1991. "Union Negotiation and Corporate Policy : A Study of Labor "Givebacks" in the Domestic Stel Industry During the 1980s," Papers 91-24, Southern California - School of Business Administration.
    5. Chris Edwards, 2010. "Public Sector Unions and the Rising Costs of Employee Compensation," Cato Journal, Cato Journal, Cato Institute, vol. 30(1), pages 87-115, Winter.
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    1. Dambra, Michael & Even-Tov, Omri & Naughton, James P., 2023. "The economic consequences of GASB financial statement disclosure," Journal of Accounting and Economics, Elsevier, vol. 75(2).

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