Pension funding gaps: do mandated external governance mechanisms matter?
ISSN: 0268-6902
Article publication date: 12 February 2024
Issue publication date: 23 February 2024
Abstract
Purpose
This study aims to examine whether and how the experience of specialized external governance mechanisms mandated by the Employee Retirement Income Security Act of 1974 – the actuary and auditor – affect pension plan funding.
Design/methodology/approach
This study uses data from annual pension plan regulatory reports (Form 5500), Form 10-K filings, Form DEF 14A filings (company proxy statements) and publicly available data sources. The hand-collected data include information related to the pension plan’s actuary and auditor and various pension plan data disclosed in the company’s financial statement footnotes.
Findings
The author finds that more experienced actuaries and auditors are associated with better funded pension plans, especially when the company has higher financial risk or lower board independence. Additional analyses indicate that companies with more experienced actuaries and pension plan auditors are more likely to make higher annual pension plan contributions and hold fewer Level 3 fair value assets.
Originality/value
The dearth of pension plan governance research generally focuses on whether and how internal governance mechanisms affect pension plan funding. To the best of the author’s knowledge, this is the first empirical study of the relationship between external pension plan governance mechanisms and pension plan funding.
Keywords
Acknowledgements
The author appreciate the helpful comments of John Abernathy, Eric Rapley, and two anonymous reviewers. He is thankful for the support provided by Sam Houston State University’s COBA Summer Research Grant Program.
Data availability: Data are publicly available from sources identified in the paper.
Citation
England, T. (2024), "Pension funding gaps: do mandated external governance mechanisms matter?", Managerial Auditing Journal, Vol. 39 No. 3, pp. 263-293. https://doi.org/10.1108/MAJ-05-2023-3912
Publisher
:Emerald Publishing Limited
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