แปลบทความวิจัยWefocusouranalysisonw

แปลบทความวิจัยWefocusouranalysisonwhetherstatesengageinactionstomaskthesizeofpensionfundinggapsandthusreducethesize
ofpensioncontributionsduringperiodsoffiscalstressandwhetherthereareeconomicoutcomesassociatedwiththoseactions.
Pensionobligationsareamongthelargestobligationsstatesface,andtakingaccountingactionstoimprovethefundedstatusof
theseobligationsmayreduceastate'sexpendituresonpensionsandprovidestateswiththeflexibilitytoavoidraisingtaxesor
cuttingentitlementprogramsduringeconomicdownturns.However,usingaccountingdiscretiontoreducefundinggapsis
likelytoresultinanunderstatedcostoflaborbeingreflectedinthestate'saccountingsystem.Thisisparticularlyimportantas
theinformationthatisgeneratedbythestates’ accountingsystemservesasinputsintostates'budgets,appropriations,and
othercontrolmechanisms.Whenanaccountingsystemunderstatesthecostsassociatedwithpensionbenefits,statesmay
investmoreinlabor,asthe “true-cost” of eachworkerisnotreflectedinthedecision-maker'sinformationset.
WearguethatthereareseveralelementsofGASBpensionreportingrulesthatallowstatestounderstatetheirpension
funding gaps,andthuslowertheirannualpensionrelatedexpenditures.4 In particular,governmentalentitiesdiscount
future pensionbenefitsusingtheexpectedinvestmentreturnonassetsheldinthepensiontrustandhavethediscretionto
amortize investmentgainsandlossesoverfuturereportingperiods.Jointly,theserulesprovidefinancialreporting
discretion topoliticianssotheycanreducefundinggapsandrequiredcontributionstothepensionfund,whichmay
alleviate budgetarystressandtheneedtoincreasetaxesandcutspending.Thus,themainhypothesesweinvestigateinthe
paper arewhetherstatesunderstatetheirpensionfundinggapsinperiodsoffiscalstress,whetherunderstatedpension
funding gapsareassociatedwithstates’ decisions toengageinmid-yearspendingcutsandtaxincreases,andwhetherthe
extenttowhichstatesunderstatetheirpensionfundinggapsisassociatedwithfutureemploymentcosts.
Toprovideevidenceonthesehypotheses,wecollectdataonthestate'spensionobligationsfromtwosources:thePublic
Pension CoordinatingCouncil'sPENDATSurveyofStateandLocalGovernmentEmployeeRetirementSystemsandthe
Boston CollegeCenterforRetirementResearchforfiscalyearsfrom1990–2009.Wesupplementthisdatabyhandcollecting
information formissingplan-yearsdirectlyfromthestate'sComprehensiveAnnualFinancialReports(CAFRs)andpension
plan valuationreports.Afteraccountingformissingdata,wehave984stateyearswithpensiondata.
Westartouranalysisbyinvestigatingtherelationbetweentheextenttowhichstatesunderstatetheirpension
fundinggapsandmeasuresofthestates’ fiscalcondition.5 Wedevelopameasureoftheextenttowhichstatesunderstate
theirpensionfundinggapsbycomparingthefundinggapreportedinthestate'saccountingrecordsundertheGASB's
rulestothefundinggaptheywouldhavereportedhadtheyfollowedtheFinancialAccountingStandardsBoard's(FASB)
rules.WeusethefundinggapcalculatedundertheFASBrulesasourbenchmarkbecauseitapproximatesthesettlement
costofthepensionliabilityandusesthemarketvalueofthepensionassets.Webelievethisnumbermoreaccurately
reflectsthetruesizeofthefundinggap.TheFASBapproachisalsoconsistentwiththeoneadvocatedbyacademics(seefor
example, Novy-MarxandRauh,2011) andadoptedbymostotherdevelopedcountries,includingCanadaandmanyEuropean
countries.
Wethendecomposethetotalunderstatementofthepensionfundinggapintothreepieces:theportionthatisrelatedto
the useofdiscretiontooverestimatetheexpectedreturnonplanassets,theportionthatisattributabletotheamortization
of realizedandunrealizedinvestmentreturns,andtheportionthatreflectsdifferencesbetweentheGASB'sandFASB'srules
for theselectionoftheappropriatediscountrate.Wemeasuretheextenttowhichastateisfiscallystressedusingtwo
variables.Ourfirstvariablemeasurestheextenttowhichthestateisrunningabudgetdeficitinthecurrentfiscalyearand
our secondvariablemeasurestheextenttowhichastatehasreservestomeetanyfiscalshortfall.
Wefindthattheextenttowhichastateisfiscallystressedisassociatedwiththemagnitudeofthepensionfundinggap
understatement.Specifically,wefindthatstatesoverestimatetheexpectedreturnonplanassetstoagreaterextentduring
periods whentheyarerunningbudgetdeficitsandwhentheyhavearelativelysmallercushionintheirgeneralfund
balances. Ahigherexpectedreturnonassetswillproducealowerpensionliability,andhencealowerfundinggap.These
results suggestthatstatesusethediscretionallowedundertheGASBrulestounderstatethefundinggapwhentheyare
financiallyconstrained.Wealsofindthatstatesoverestimatetheexpectedreturnonplanassetsduringperiodsinwhichthe
governorisinarelativelymorecompetitiveelectionandduringperiodsinwhichthestateissuesdebt.Theseresultsare
consistentwithfindingsinpriorstudiesthatstateshaveincentivestomanipulatetheoutputsoftheaccountingsystemto
influence theoutcomesofelections(Kido etal.,2012) andtoinfluencedebtcosts(Baber andGore,2008). Wedonotfind
anyevidencethatstatesopportunisticallysettheamortizationperiodforinvestmentgainsandlossestoinfluenceelections,
reduce debtcosts,ortoinflatefiscalperformance.
Our firstsetoftestsprovidesindirectevidencethatstatesmanipulatetheirfundinggapstoavoidraisingtaxesorcutting
expenditures.Oursecondsetoftestsexaminesthisquestionmoredirectlybyinvestigatingwhethertheaccounting
discretion statesusetounderstatetheirfundinggapsreducestheextenttowhichfiscalstressisassociatedwithstates’
decisions toraisetaxesorcutexpenditures.Consistentwithourexpectation,wefindthatstatesthatoverestimatethe
expectedreturnonplanassetstoagreaterextentarelesslikelytoengageinmidyeartaxincreasesandmidyearexpenditure
4 The GASBreleasednewaccountingstandardsforpublicpensionplansin2012.Thesestandards,GASBStatementsNo.67and68,areeffectiveforfiscal
yearsbeginningafterJune15,2013andJune15,2014,respectively.Becauseofthistimeline,allofouranalysisisbasedonthepriorregulatoryregime.
However,wediscusstheimplicationsofourresultsforthesenewstandardsintheconclusion.
5Wefocusondevelopingameasureoftheextenttowhichstatesunderstatetheirfundinggaps,andarguethattheextenttowhichstatesunderstate
their fundinggapswillaffecttheannualexpendituresstatesmakefortheirpensionobligations.Aswediscussbelow,understatedfundinggapscanreduce
expendituresforboththenormalandamortizationcomponentsoftheAnnualRequiredContributions(ARC)forastatepensionplan.
J. Naughtonetal./JournalofAccountingandEconomics59(2015)221–241 222

ผลลัพธ์ (อังกฤษ) 1:

Translation articles research Wefocusouranalysisonwhetherstatesengageinactionstomaskthesizeofpensionfundinggapsandthusreducethesizeofpensioncontributionsduringperiodsoffiscalstressandwhetherthereareeconomicoutcomesassociatedwiththoseactions.Pensionobligationsareamongthelargestobligationsstatesface,andtakingaccountingactionstoimprovethefundedstatusoftheseobligationsmayreduceastate'sexpendituresonpensionsandprovidestateswiththeflexibilitytoavoidraisingtaxesorcuttingentitlementprogramsduringeconomicdownturns.However,usingaccountingdiscretiontoreducefundinggapsislikelytoresultinanunderstatedcostoflaborbeingreflectedinthestate'saccountingsystem.Thisisparticularlyimportantastheinformationthatisgeneratedbythestates' accountingsystemservesasinputsintostates'budgets,appropriations,andothercontrolmechanisms.Whenanaccountingsystemunderstatesthecostsassociatedwithpensionbenefits,statesmayinvestmoreinlabor,asthe "true-cost" of eachworkerisnotreflectedinthedecision-maker'sinformationset.WearguethatthereareseveralelementsofGASBpensionreportingrulesthatallowstatestounderstatetheirpensionfunding gaps,andthuslowertheirannualpensionrelatedexpenditures.4 In particular,governmentalentitiesdiscountfuture pensionbenefitsusingtheexpectedinvestmentreturnonassetsheldinthepensiontrustandhavethediscretiontoamortize investmentgainsandlossesoverfuturereportingperiods.Jointly,theserulesprovidefinancialreportingdiscretion topoliticianssotheycanreducefundinggapsandrequiredcontributionstothepensionfund,whichmayalleviate budgetarystressandtheneedtoincreasetaxesandcutspending.Thus,themainhypothesesweinvestigateinthepaper arewhetherstatesunderstatetheirpensionfundinggapsinperiodsoffiscalstress,whetherunderstatedpensionfunding gapsareassociatedwithstates' decisions toengageinmid-yearspendingcutsandtaxincreases,andwhethertheextenttowhichstatesunderstatetheirpensionfundinggapsisassociatedwithfutureemploymentcosts.Toprovideevidenceonthesehypotheses,wecollectdataonthestate'spensionobligationsfromtwosources:thePublicPension CoordinatingCouncil'sPENDATSurveyofStateandLocalGovernmentEmployeeRetirementSystemsandtheBoston CollegeCenterforRetirementResearchforfiscalyearsfrom1990–2009.Wesupplementthisdatabyhandcollectinginformation formissingplan-yearsdirectlyfromthestate'sComprehensiveAnnualFinancialReports(CAFRs)andpensionplan valuationreports.Afteraccountingformissingdata,wehave984stateyearswithpensiondata.Westartouranalysisbyinvestigatingtherelationbetweentheextenttowhichstatesunderstatetheirpensionfundinggapsandmeasuresofthestates' fiscalcondition.5 Wedevelopameasureoftheextenttowhichstatesunderstatetheirpensionfundinggapsbycomparingthefundinggapreportedinthestate'saccountingrecordsundertheGASB'srulestothefundinggaptheywouldhavereportedhadtheyfollowedtheFinancialAccountingStandardsBoard's(FASB)rules.WeusethefundinggapcalculatedundertheFASBrulesasourbenchmarkbecauseitapproximatesthesettlementcostofthepensionliabilityandusesthemarketvalueofthepensionassets.Webelievethisnumbermoreaccuratelyreflectsthetruesizeofthefundinggap.TheFASBapproachisalsoconsistentwiththeoneadvocatedbyacademics(seeforexample, Novy-MarxandRauh,2011) andadoptedbymostotherdevelopedcountries,includingCanadaandmanyEuropeancountries.Wethendecomposethetotalunderstatementofthepensionfundinggapintothreepieces:theportionthatisrelatedtothe useofdiscretiontooverestimatetheexpectedreturnonplanassets,theportionthatisattributabletotheamortizationof realizedandunrealizedinvestmentreturns,andtheportionthatreflectsdifferencesbetweentheGASB'sandFASB'srulesfor theselectionoftheappropriatediscountrate.Wemeasuretheextenttowhichastateisfiscallystressedusingtwovariables.Ourfirstvariablemeasurestheextenttowhichthestateisrunningabudgetdeficitinthecurrentfiscalyearandour secondvariablemeasurestheextenttowhichastatehasreservestomeetanyfiscalshortfall.Wefindthattheextenttowhichastateisfiscallystressedisassociatedwiththemagnitudeofthepensionfundinggapunderstatement.Specifically,wefindthatstatesoverestimatetheexpectedreturnonplanassetstoagreaterextentduringperiods whentheyarerunningbudgetdeficitsandwhentheyhavearelativelysmallercushionintheirgeneralfundbalances. Ahigherexpectedreturnonassetswillproducealowerpensionliability,andhencealowerfundinggap.Theseresults suggestthatstatesusethediscretionallowedundertheGASBrulestounderstatethefundinggapwhentheyarefinanciallyconstrained.Wealsofindthatstatesoverestimatetheexpectedreturnonplanassetsduringperiodsinwhichthegovernorisinarelativelymorecompetitiveelectionandduringperiodsinwhichthestateissuesdebt.Theseresultsareconsistentwithfindingsinpriorstudiesthatstateshaveincentivestomanipulatetheoutputsoftheaccountingsystemtoinfluence theoutcomesofelections(Kido etal.,2012) andtoinfluencedebtcosts(Baber andGore,2008). Wedonotfindanyevidencethatstatesopportunisticallysettheamortizationperiodforinvestmentgainsandlossestoinfluenceelections,reduce debtcosts,ortoinflatefiscalperformance.Our firstsetoftestsprovidesindirectevidencethatstatesmanipulatetheirfundinggapstoavoidraisingtaxesorcuttingexpenditures.Oursecondsetoftestsexaminesthisquestionmoredirectlybyinvestigatingwhethertheaccountingdiscretion statesusetounderstatetheirfundinggapsreducestheextenttowhichfiscalstressisassociatedwithstates'decisions toraisetaxesorcutexpenditures.Consistentwithourexpectation,wefindthatstatesthatoverestimatetheexpectedreturnonplanassetstoagreaterextentarelesslikelytoengageinmidyeartaxincreasesandmidyearexpenditure4 The GASBreleasednewaccountingstandardsforpublicpensionplansin2012.Thesestandards,GASBStatementsNo.67and68,areeffectiveforfiscalyearsbeginningafterJune15,2013andJune15,2014,respectively.Becauseofthistimeline,allofouranalysisisbasedonthepriorregulatoryregime.However,wediscusstheimplicationsofourresultsforthesenewstandardsintheconclusion.5Wefocusondevelopingameasureoftheextenttowhichstatesunderstatetheirfundinggaps,andarguethattheextenttowhichstatesunderstatetheir fundinggapswillaffecttheannualexpendituresstatesmakefortheirpensionobligations.Aswediscussbelow,understatedfundinggapscanreduceexpendituresforboththenormalandamortizationcomponentsoftheAnnualRequiredContributions(ARC)forastatepensionplan.J. Naughtonetal./JournalofAccountingandEconomics59(2015)221–241 222

ผลลัพธ์ (อังกฤษ) 2:

Microsoft Research Wefocusouranalysisonwhetherstatesengageinactionstomaskthesizeofpensionfundinggapsandthusreducethesize
Ofpensioncontributionsduringperiodsoffiscalstressandwhetherthereareeconomicoutcomesassociatedwiththoseactions.
Pensionobligationsareamongthelargestobligationsstatesface, Andtakingaccountingactionstoimprovethefundedstatusof
Theseobligationsmayreduceastate'sexpendituresonpensionsandprovidestateswiththeflexibilitytoavoidraisingtaxesor
Cuttingentitlementprogramsduringeconomicdownturns.However, Usingaccountingdiscretiontoreducefundinggapsis
Likelytoresultinanunderstatedcostoflaborbeingreflectedinthestate'saccountingsystem.Thisisparticularlyimportantas
Theinformationthatisgeneratedbythestates' Accountingsystemservesasinputsintostates'budgets, appropriations, and
Othercontrolmechanisms.Whenanaccountingsystemunderstatesthecostsassociatedwithpensionbenefits, Statesmay
Investmoreinlabor, asthe "true-cost" of Eachworkerisnotreflectedinthedecision-Maker'sinformationset. .
WearguethatthereareseveralelementsofGASBpensionreportingrulesthatallowstatestounderstatetheirpension
funding gaps, Andthuslowertheirannualpensionrelatedexpenditures.4 In particular, Governmentalentitiesdiscount
Future Pensionbenefitsusingtheexpectedinvestmentreturnonassetsheldinthepensiontrustandhavethediscretionto
amortize Investmentgainsandlossesoverfuturereportingperiods.Jointly, Theserulesprovidefinancialreporting
discretion Topoliticianssotheycanreducefundinggapsandrequiredcontributionstothepensionfund, Whichmay
alleviate Budgetarystressandtheneedtoincreasetaxesandcutspending.Thus, Themainhypothesesweinvestigateinthe
Paper Arewhetherstatesunderstatetheirpensionfundinggapsinperiodsoffiscalstress, Whetherunderstatedpension
funding Gapsareassociatedwithstates' decisions Toengageinmid-Yearspendingcutsandtaxincreases, Andwhetherthe
Extenttowhichstatesunderstatetheirpensionfundinggapsisassociatedwithfutureemploymentcosts.
Toprovideevidenceonthesehypotheses, Wecollectdataonthestate'spensionobligationsfromtwosources. : ThePublic
Pension CoordinatingCouncil'sPENDATSurveyofStateandLocalGovernmentEmployeeRetirementSystemsandthe
Boston CollegeCenterforRetirementResearchforfiscalyearsfrom1990-2009.Wesupplementthisdatabyhandcollecting
information Formissingplan-Yearsdirectlyfromthestate'sComprehensiveAnnualFinancialReports (CAFRs) Andpension
Valuationreports.Afteraccountingformissingdata Plan, Wehave984stateyearswithpensiondata.
Westartouranalysisbyinvestigatingtherelationbetweentheextenttowhichstatesunderstatetheirpension
Fundinggapsandmeasuresofthestates' Fiscalcondition.5 Wedevelopameasureoftheextenttowhichstatesunderstate
Theirpensionfundinggapsbycomparingthefundinggapreportedinthestate'saccountingrecordsundertheGASB's
RulestothefundinggaptheywouldhavereportedhadtheyfollowedtheFinancialAccountingStandardsBoard's (FASB)
Rules.WeusethefundinggapcalculatedundertheFASBrulesasourbenchmarkbecauseitapproximatesthesettlement
Costofthepensionliabilityandusesthemarketvalueofthepensionassets.Webelievethisnumbermoreaccurately
Reflectsthetruesizeofthefundinggap. .TheFASBapproachisalsoconsistentwiththeoneadvocatedbyacademics (Seefor
example, Novy-MarxandRauh, 2 011) Andadoptedbymostotherdevelopedcountries, IncludingCanadaandmanyEuropean
countries.
Wethendecomposethetotalunderstatementofthepensionfundinggapintothreepieces: Theportionthatisrelatedto
the Useofdiscretiontooverestimatetheexpectedreturnonplanassets, Theportionthatisattributabletotheamortization
of Realizedandunrealizedinvestmentreturns, AndtheportionthatreflectsdifferencesbetweentheGASB'sandFASB'srules
for Theselectionoftheappropriatediscountrate.Wemeasuretheextenttowhichastateisfiscallystressedusingtwo
Variables.Ourfirstvariablemeasurestheextenttowhichthestateisrunningabudgetdeficitinthecurrentfiscalyearand
our Secondvariablemeasurestheextenttowhichastatehasreservestomeetanyfiscalshortfall.
Wefindthattheextenttowhichastateisfiscallystressedisassociatedwiththemagnitudeofthepensionfundinggap
Understatement.Specifically, Wefindthatstatesoverestimatetheexpectedreturnonplanassetstoagreaterextentduring
Whentheyarerunningbudgetdeficitsandwhentheyhavearelativelysmallercushionintheirgeneralfund periods.
balances. Ahigherexpectedreturnonassetswillproducealowerpensionliability, Andhencealowerfundinggap.These
results SuggestthatstatesusethediscretionallowedundertheGASBrulestounderstatethefundinggapwhentheyare
Financiallyconstrained.Wealsofindthatstatesoverestimatetheexpectedreturnonplanassetsduringperiodsinwhichthe
Governorisinarelativelymorecompetitiveelectionandduringperiodsinwhichthestateissuesdebt.Theseresultsare
Consistentwithfindingsinpriorstudiesthatstateshaveincentivestomanipulatetheoutputsoftheaccountingsystemto
influence Theoutcomesofelections (Kido etal., the 2,012th) Andtoinfluencedebtcosts (AndGore Baber, the 2008th). Wedonotfind
Anyevidencethatstatesopportunisticallysettheamortizationperiodforinvestmentgainsandlossestoinfluenceelections,
Reduce Debtcosts, Ortoinflatefiscalperformance.
Our Firstsetoftestsprovidesindirectevidencethatstatesmanipulatetheirfundinggapstoavoidraisingtaxesorcutting
Expenditures.Oursecondsetoftestsexaminesthisquestionmoredirectlybyinvestigatingwhethertheaccounting
discretion Statesusetounderstatetheirfundinggapsreducestheextenttowhichfiscalstressisassociatedwithstates'
decisions. Toraisetaxesorcutexpenditures.Consistentwithourexpectation, Wefindthatstatesthatoverestimatethe
Expectedreturnonplanassetstoagreaterextentarelesslikelytoengageinmidyeartaxincreasesandmidyearexpenditure
4 The GASBreleasednewaccountingstandardsforpublicpensionplansin2012.Thesestandards, GASBStatementsNo.67and68, Areeffectiveforfiscal
YearsbeginningafterJune15,2013andJune15,2014, Respectively.Becauseofthistimeline, Allofouranalysisisbasedonthepriorregulatoryregime.
However, Wediscusstheimplicationsofourresultsforthesenewstandardsintheconclusion.
5Wefocusondevelopingameasureoftheextenttowhichstatesunderstatetheirfundinggaps, Andarguethattheextenttowhichstatesunderstate
their Fundinggapswillaffecttheannualexpendituresstatesmakefortheirpensionobligations.Aswediscussbelow, Understatedfundinggapscanreduce
ExpendituresforboththenormalandamortizationcomponentsoftheAnnualRequiredContributions (ARC) Forastatepensionplan.
J. Naughtonetal. / JournalofAccountingandEconomics59 (2015) 221-241 222.

ผลลัพธ์ (อังกฤษ) 3:

Translation research articles Wefocusouranalysisonwhetherstatesengageinactionstomaskthesizeofpensionfundinggapsandthusreducethesize
, ofpensioncontributionsduringperiodsoffiscalstressandwhetherthereareeconomicoutcomesassociatedwiththoseactions.
Pensionobligationsareamongthelargestobligationsstatesface andtakingaccountingactionstoimprovethefundedstatusof
.Theseobligationsmayreduceastate 'sexpendituresonpensionsandprovidestateswiththeflexibilitytoavoidraisingtaxesor
cuttingentitlementprogramsduringeconomicdownturns.However usingaccountingdiscretiontoreducefundinggapsis likelytoresultinanunderstatedcostoflaborbeingreflectedinthestate' saccountingsystem.Thisisparticularlyimportantas,

.Theinformationthatisgeneratedbythestates. ' Accountingsystemservesasinputsintostates' budgets appropriations and
othercontrolmechanisms.Whenanaccountingsystemunderstatesthecostsassociatedwithpensionbenefits,,,,, Statesmay
investmoreinlabor asthe "True-cost." of eachworkerisnotreflectedinthedecision-maker 'sinformationset.
.WearguethatthereareseveralelementsofGASBpensionreportingrulesthatallowstatestounderstatetheirpension
funding. Gaps andthuslowertheirannualpensionrelatedexpenditures.4, In, particular governmentalentitiesdiscount
future. Pensionbenefitsusingtheexpectedinvestmentreturnonassetsheldinthepensiontrustandhavethediscretionto
amortize. Investmentgainsandlossesoverfuturereportingperiods.Jointly.Theserulesprovidefinancialreporting
discretion. Topoliticianssotheycanreducefundinggapsandrequiredcontributionstothepensionfund whichmay
alleviate,, Budgetarystressandtheneedtoincreasetaxesandcutspending.Thus themainhypothesesweinvestigateinthe
paper,, Arewhetherstatesunderstatetheirpensionfundinggapsinperiodsoffiscalstress, the whetherunderstatedpension
.Funding gapsareassociatedwithstates', decisions toengageinmid-yearspendingcutsandtaxincreases andwhetherthe
.
, extenttowhichstatesunderstatetheirpensionfundinggapsisassociatedwithfutureemploymentcosts Toprovideevidenceonthesehypotheses wecollectdataonthestate 'spensionobligationsfromtwosources: thePublic
.Pension CoordinatingCouncil 'sPENDATSurveyofStateandLocalGovernmentEmployeeRetirementSystemsandthe
Boston. CollegeCenterforRetirementResearchforfiscalyearsfrom1990 - 2009.Wesupplementthisdatabyhandcollecting
information. Formissingplan-yearsdirectlyfromthestate 'sComprehensiveAnnualFinancialReports (CAFRs) andpension
plan. Valuationreports.Afteraccountingformissingdata, the wehave984stateyearswithpensiondata.Westartouranalysisbyinvestigatingtherelationbetweentheextenttowhichstatesunderstatetheirpension

fundinggapsandmeasuresofthestates. ' Fiscalcondition.5. Wedevelopameasureoftheextenttowhichstatesunderstate
theirpensionfundinggapsbycomparingthefundinggapreportedinthestate 'saccountingrecordsundertheGASB' s
.RulestothefundinggaptheywouldhavereportedhadtheyfollowedtheFinancialAccountingStandardsBoard 's (FASB)


rules.WeusethefundinggapcalculatedundertheFASBrulesasourbenchmarkbecauseitapproximatesthesettlement costofthepensionliabilityandusesthemarketvalueofthepensionassets.Webelievethisnumbermoreaccurately reflectsthetruesizeofthefundinggap.TheFASBapproachisalsoconsistentwiththeoneadvocatedbyacademics (seefor
example, Novy-MarxandRauh, 2011). Andadoptedbymostotherdevelopedcountries includingCanadaandmanyEuropean countries.

, Wethendecomposethetotalunderstatementofthepensionfundinggapintothreepieces: theportionthatisrelatedto
the. Useofdiscretiontooverestimatetheexpectedreturnonplanassets, the theportionthatisattributabletotheamortization
.Of realizedandunrealizedinvestmentreturns andtheportionthatreflectsdifferencesbetweentheGASB sandFASB ',' srules
for. Variables.Ourfirstvariablemeasurestheextenttowhichthestateisrunningabudgetdeficitinthecurrentfiscalyearand theselectionoftheappropriatediscountrate.Wemeasuretheextenttowhichastateisfiscallystressedusingtwo

.Our secondvariablemeasurestheextenttowhichastatehasreservestomeetanyfiscalshortfall.


, Wefindthattheextenttowhichastateisfiscallystressedisassociatedwiththemagnitudeofthepensionfundinggap understatement.Specifically wefindthatstatesoverestimatetheexpectedreturnonplanassetstoagreaterextentduring periods. Whentheyarerunningbudgetdeficitsandwhentheyhavearelativelysmallercushionintheirgeneralfund
.Balances. Ahigherexpectedreturnonassetswillproducealowerpensionliability andhencealowerfundinggap.These
results,, Financiallyconstrained.Wealsofindthatstatesoverestimatetheexpectedreturnonplanassetsduringperiodsinwhichthe suggestthatstatesusethediscretionallowedundertheGASBrulestounderstatethefundinggapwhentheyare

.Governorisinarelativelymorecompetitiveelectionandduringperiodsinwhichthestateissuesdebt.Theseresultsare

, consistentwithfindingsinpriorstudiesthatstateshaveincentivestomanipulatetheoutputsoftheaccountingsystemto influence Theoutcomesofelections (Kido etal, 2012) andtoinfluencedebtcosts (Baber, andGore 2008). Wedonotfind
.Anyevidencethatstatesopportunisticallysettheamortizationperiodforinvestmentgainsandlossestoinfluenceelections
reduce,, Debtcosts, the ortoinflatefiscalperformance.
Our. Expenditures.Oursecondsetoftestsexaminesthisquestionmoredirectlybyinvestigatingwhethertheaccounting firstsetoftestsprovidesindirectevidencethatstatesmanipulatetheirfundinggapstoavoidraisingtaxesorcutting

.Discretion statesusetounderstatetheirfundinggapsreducestheextenttowhichfiscalstressisassociatedwithstates'
decisions. Toraisetaxesorcutexpenditures.Consistentwithourexpectation wefindthatstatesthatoverestimatethe

, expectedreturnonplanassetstoagreaterextentarelesslikelytoengageinmidyeartaxincreasesandmidyearexpenditure 4. The GASBreleasednewaccountingstandardsforpublicpensionplansin2012.Thesestandards GASBStatementsNo.67and68 areeffectiveforfiscal
yearsbeginningafterJune15,,,,,, 2013andJune15 2014 respectively.Becauseofthistimeline allofouranalysisisbasedonthepriorregulatoryregime.
.
, However wediscusstheimplicationsofourresultsforthesenewstandardsintheconclusion, 5Wefocusondevelopingameasureoftheextenttowhichstatesunderstatetheirfundinggaps andarguethattheextenttowhichstatesunderstate
.Their, fundinggapswillaffecttheannualexpendituresstatesmakefortheirpensionobligations.Aswediscussbelow understatedfundinggapscanreduce
expendituresforboththenormalandamortizationcomponentsoftheAnnualRequiredContributions (ARC) forastatepensionplan.
J.? Naughtonetal. / JournalofAccountingandEconomics59 (2015) 221 - 241 222.