Toward Understanding the Determinants of Pension Underfunding in the Public Sector

Posted: 20 Jul 2014

See all articles by Barry R. Marks

Barry R. Marks

University of Houston, Clear Lake - School of Business and Public Administration

K. K. Raman

The University of Texas at San Antonio

Earl R. Wilson

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

Date Written: Fall 1988

Abstract

Currently, there is no integrating theory which specifies why governmental pension plans are so significantly underfunded. In this study, we test several hypotheses concerning such underfunding in a cross-sectional regression model for state-administered pension plans. The conceptual model underlying our empirical tests is based on states' economic and political incentives for pension underfunding and incorporates alternative public sector monitoring mechanisms (including the quality of financial reporting). Several empirical regularities are documented for the first time as the result of this study. In light of the Governmental Accounting Standard Board's (GASB, 1987, p. 22; Ives, 1987, p. 134) stated position that financial reports should demonstrate "interperiod equity" as a key element of public sector accountability, these empirical results should help refine our theoretical understanding of governmental pension underfunding.

Keywords: Governmental pensions, underfunding, incentives

JEL Classification: M41

Suggested Citation

Marks, Barry R. and Raman, K. K. and Wilson, Earl R., Toward Understanding the Determinants of Pension Underfunding in the Public Sector (Fall 1988). Journal of Accounting and Public Policy, Vol. 7, No. 3, 157-183 (Fall 1988) . Available at SSRN: https://ssrn.com/abstract=2468125

Barry R. Marks

University of Houston, Clear Lake - School of Business and Public Administration ( email )

Houston, TX 77058
United States

K. K. Raman (Contact Author)

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

Earl R. Wilson

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

School of Accountancy
Columbia, MO 65211
United States
573-882-3225 (Phone)
573-882-2437 (Fax)

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