A Conceptual Approach to Pension Accounting.

Abstract The article determines whether the acceptance of actuarial cost methods as the basis for pension expense and liability accounting aids or hinders the development of conceptually sound pension accounting. Financing ability and alternative investment opportunities, and not the appropriate matching of pension expense with period revenues, are the primary criteria for the selection of a particular actuarial cost method. Based on actuarial assumptions, the actuary determines: the estimated period timing of future pension payments to the existing workforce; alternative funding methods, which offer company management a choice of funding patterns to provide for future pension payments to employees. The determination of pension expense involves, therefore, the calculation of "economic sacrifices made" by a company with respect to pension benefits, and the association of these "economic sacrifices" with period revenues in a manner that approximates the underlying "causal" relationship. Pension benefits, like wages, represent bargained consideration exchanged for employee labor-services.