Pension Liabilities and Assets.

Abstract The outlines an accounting theory approach to the problem of determining the appropriate times to record the employer's pension expense. In the proposed approach, the expense timing problem becomes a problem of asset and liability measurement. "Pension liability" can be defined as the value of the employer's obligation to make future pension payments to current and retired employees. This includes the obligation to make future payments based on or "related to" services yet to be performed but excludes anticipated pension payments to those to be employed in the future. "Pension asset" can be defined as the value of the expected future employee services for which part of the pension liability has been incurred. When an individual is employed, a pension liability arises immediately. There arises at the same time a pension asset, which may normally be supposed to equal the pension liability. At the time when an employee retires, the pension liability will have grown larger because of the time value of money, but the pension asset will have decreased to zero.