Last Man Standing: Unintended Consequences of Multiemployer Pension Transparency

Abstract

In 2011, the FASB issued ASU 2011-09, which substantially increased the disclosure surrounding multiemployer pension plans (MEPPs). We study the effect of this disclosure change on the underlying pension plans. Our findings reveal a decline in the financial health of affected MEPPs after the disclosure change. Firms are more likely to withdraw from affected plans, thus concentrating the liability on remaining employers and jeopardizing the retirement security of employee participants. This outcome is exacerbated by that fact that, although exiting firms are assessed withdrawal liabilities to compensate the MEPPs for their share of the plans’ deficits, the calculated liabilities do not fully reflect the exiting firms’ proportionate shares. Our results highlight the far-reaching and unintended consequences of increased transparency—combined with poorly measured pension liabilities—on individuals reliant on MEPPs for retirement income, as well as the taxpayers who may be left funding shortfalls.

Keywords: Economic consequences of accounting standards, multiemployer pensions, defined benefit pension plans, disclosure, fair value, FASB