Public Pension Accounting Reform: Preparer Incentives and User Interest

Abstract

We examine the lobbying behavior of state governments and their financial statement users in the development of public pension accounting standards GASB 67 and 68. We find that states’ opposition to liability increasing provisions is increasing in the severity of pension plan underfunding, budget deficits, balanced budget requirements, and employee unionization. By contrast, we find that support from financial statement users is amplified in states with poorly funded plans and large budget deficits, suggesting government lobbying is misaligned with a user interest perspective. We also find that public employees overwhelmingly oppose the standards, relative to external users, but the difference is moderated in states with constitutionally protected pension benefits. This finding is consistent with the expectation that pension accounting reform will motivate benefit cuts as opposed to funding increases. Analyses of ensuing state pension reforms confirm that states opposed to the accounting reform are more likely to cut pension benefits.

Keywords: Public Pension, GASB, Standard Setting, Lobbying, Government

JEL Classification: M41, M48, H75