29 Sep 2022


How to Account for Pensions

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Academic level: College

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Pensions have few essential features that combine making it's complicated and tricky in estimating pension liabilities over a period. The technicalities arise as pension obligations are known to be affected by economic eventualities that impact over a period. Pension accounting was therefore introduced in the U.S.in order to estimate future pension obligations and also to compute the present value of the pension liability. This paper examines as to why pension accounting has less emphasis in other foreign countries than the U.S. 

Unlike the U.S., other developed foreign countries have elaborate Government Accounting Standards Board (GASB) that enables them to account for pension liabilities. The standards of the financial economy boards additionally are more enhanced as they account for the risks that are likely to be involved in the process. The U.S., on the other hand, allows other entities such as the public plans to either understate or overstate the size of pension liabilities. 

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Secondly, the U.S. receives much regulatory interference in term of strategic assets allocation from the federal funds used as pensions (Brown, 2012). This means that they have to use the latitudes that are applicable to the accounting board, pension accounting being one of them. The codified GABS standards, therefore, results in public workers getting fewer pension funds. This is different from countries such a Canada that has both private and public funds that enable them to account for pension liabilities using current interest rates. This allows them to maintain high premium rates as there is increased amount of resources allocated. 

In conclusion, pension funding has been brewing for a while in the U.S. The problems have exacerbated due to financial difficulties arising from decreased revenues. Pension accounting in the U.S. was done for the purpose of estimation and disclosure. 


Brown, J. (2012, June 11). U.S. Public Pension Plans are Different (and Not in a Good Way!). Forbes magazine. Retrieved from www.forbes.com/sites/jeffreybrown/2012/06/11/u-s-public-pension-plans-are-different-and-not-in-a-good-way/#d01a9ca1a660 

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StudyBounty. (2023, September 14). How to Account for Pensions.


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