The Elusive Relation Between Pension Discount Rates and Deficits
45 Pages Posted: 27 Jan 2020 Last revised: 8 Jul 2021
Date Written: June 30, 2021
The relation between defined-benefit pension discount rates and funding status is more complex than it might first appear. Existing evidence suffers from estimation biases which makes precise inference unreliable. We document the biases and quantify their impact on inference in relation to corporate window dressing of DB funding status. Our empirical evidence from the UK suggests that pension sponsors use discretion in choice of pension discount rate not only to reduce reported deficits, but also to reduce reported surpluses.
Keywords: Defined Benefit, Pension, Discount Rate, Manipulation, Accounting Standards, Window Dressing
JEL Classification: M49; M48; G39
Suggested Citation: Suggested Citation