By operating separate trusts for certain benefits, companies operating under GAAP can often greatly reduce their pension liability (Kossov 2010). Pension funds must then be sued only for the payment of retirement benefits (and the earning of interest), then, rather than being combined with other benefit programs funded or operated by the company as they often are now (Kossov 2010).
It is in the area of pension assets, however, that the greatest complexities and disagreements can be found in the current era. Pension assets are used to earn interest for future pension disbursements as well as to pay out current pension disbursements owed, and because a large part of the job is to grow the wealth pool that exists as quickly yet as safely as is possible, companies have long reported pension assets and expected returns on those assets as earnings, adjusting historical statements as real data becomes available but able to consistently include predictions as real figures (Fortune 2005; Bouvier 2010); Comprix & Muller 2010). Under the IASBs new standards, this will no longer be possible, but only real assets will be legally listed (Bouvier 2010).
Some argue that this will lead to more accurate reporting, as pension assets are affected by a wide array of internal issues — from higher-than-expected longevity to base salary increases — as well as external features of the market in general and the specific investments selected by the pension funds controllers (Bouvier 2010; Comprix & Muller 2010). Others maintain, however, that the numbers will appear more concrete but will in fact fail to take many assets into account (Bouvier 2010; Comprix & Muller 2010).
The major problem with pension funds is that they are very volatile and thus difficult to accurately predict. Changes are only made after the fact, and current predictions do not necessarily need to take past downturns into account; changing this could have a major impact on a firms apparent financial health (Fortune 2005; Comprix & Muller 2010).
Bouvier, S. (2010). Pensions Overhaul Support Depends on Boards Continued Review. Accounting Policy & Practice 6(20): 689-91.
Comprix, J. & Muller, K. (2010). Pension plan accounting estimates and the freezing of defined benefit pension plans. Journal of accounting and economics 51(1-2): 115-33..