Spotlight on pensions

Pensions represent a significant financial burden for many companies and a critical source of retirement income for employees. Accordingly, it is important that corporate financial statements transparently present information about the financial health and consequences of pension plans. Numerous criticisms have been levied at financial reporting for pensions, leading to a recent project to revise pension accounting. This article discusses implications of changes to pensions accounting for financial statement users and corporate managers. In general, research suggests that likely changes in pension accounting could increase financial statement users' perceptions of companies' pension burden and risk. In turn, these perceptions could affect corporate managers' decisions with respect to pension commitments and investments.