Do local governments present required disclosures for defined benefit pension plans

Abstract Recent well-publicized scandals have highlighted the importance of defined benefit pension plans for state and local governments. Using pension related data for 233 local governments in Michigan and Pennsylvania, we examine whether local governments follow the disclosure requirements under GASBS No. 27, and the factors that explain a government’s propensity to include these items. Our descriptive statistics suggest that a significant number of governments with sole-employer defined benefit pension plans are not complying with these requirements. Our regression results suggest that the GFOA Certificate of Achievement Program, debt, state oversight, and appointed officials impact a government’s propensity to follow the disclosure requirements of GASBS No. 27. Our findings also suggest that pension plans that are under-funded are less likely to include these disclosures and disclosure quality is lower for disclosures in required supplementary information compared to those in the financial statement notes. Elgin et al. (2010) noted that unfunded retirement benefits have become an election issue, and unions are fighting back. As the importance of this issue intensifies, it is critical that interested parties have a complete set of facts to make informed decisions. Our regression results should be useful to users and external auditors in identifying governments that are likely to provide incomplete pension disclosures.