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Defined Benefit Pension Plans: Blue‐Chip Benchmark
Author(s) -
Oxner Karen M.,
Oxner Thomas H.
Publication year - 2018
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.22308
Subject(s) - pension , benchmarking , actuarial science , benchmark (surveying) , rate of return , accounting , audit , sample (material) , business , economics , financial statement , finance , geography , geodesy , chemistry , chromatography , marketing
Since accounting for defined benefit pension plans involves many estimates, having benchmark information is important to financial statement preparers, as well as to their auditors and actuaries. This article provides an overview of defined benefit pension plans for the 20 companies in the Dow Jones Industrial Average (DJIA) who have such retirement plans for the 2016 reporting period. A brief description of pension accounting rules is provided, and then analysis of selected components of pension expense for these 20 companies is presented, including expected return on pension plan assets, actual return, and the pension discount rate. Actual returns are compared to expected returns for the most recent six‐year period to determine if expected returns are realistic. The discount rate is compared to projections of long‐term interest rates for reasonableness. Finally, the funded status of the defined benefit pension plans is examined and shows that all but three firms in the sample are underfunded. The possibility for interested parties to use these findings for benchmarking other pension plans are explored in the article. © 2018 Wiley Periodicals, Inc.