The Debt Equivalence of Unfunded Government Pension Obligations

Posted: 23 Jul 2014

See all articles by K. K. Raman

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: Spring 1990

Abstract

The Governmental Accounting Standards Board (GASB, 1987, p. 12) has identified bond investors as a primary user group of government financial reports and is currently active in setting standards for pension accounting and reporting (GASB, 1986, 1988; lves, 1988). However, relatively little is known about the information content of government pension data for bond pricing. In this study, we employ seasoned bond prices for a national sample of cities to investigate whether the market ( 1) is cognizant of unfunded pension obligations, (2) appears to distinguish between accumulated and projected beneĀ­fits, and (3) treats pension liabilities as equivalent to general obligation debt. Our results suggest that unfunded pension obligations are only partially impounded in bond prices; a dollar of pension debt appears to have a smaller incremental effect on yield-to-maturity than a dollar of bonded debt. The implications for the GASB are discussed.

Keywords: government pensions, debt equivalence, sesoned bond prices

JEL Classification: M41

Suggested Citation

Raman, K. K. and Wilson, Earl R., The Debt Equivalence of Unfunded Government Pension Obligations (Spring 1990). Journal of Accounting and Public Policy, Vol. 9, No. 1, 1990. Available at SSRN: https://ssrn.com/abstract=2469235

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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