Since 1985, the Financial Standards Accounting Board has required that private corporations account for the present value of all of their future pension liabilities, regardless of whether the money had been set aside to pay for them. During the first decade of this century, the requirement was expanded to cover the present value of post-retirement health and other benefits.
Some have argued that the full disclosure of pension obligations has driven, or at least encouraged, the private sector’s abandonment of traditional defined-benefit pension plans, where the employer bears the risk of insufficient funding or poor investment performance, in favor of 401(k) and other defined contribution plans that put the risk on the employee. Whether or not that is the case, more realistic accounting for these obligations gave shareholders and other investors a better sense of the true burden of retirement benefits on the enterprise.
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