Read “The Perils of Pensions: ……” 1. Why would investors and analysts have trouble processing pension information?
Investors and Analysts only gradually incorporate pension information into prices and forecasts as they observe the effects of pension plan changes on subsequent quarterly earnings. Analysts seem to ignore the constant disclosures regarding pensions each quarter and investors do not accurately assess the long run cash flow and earnings implications of off balance sheet pension disclosures. A combination of information complexity and presentation (sometimes relevant information is not found on the primary financials directly) can affect both the assimilation and weighting of pension information by analysts.

2. What makes pension expense more susceptible to earnings management?

Pension expense is more susceptible to earnings management because of the complex nature of the expense and the estimates that are made as to the value of the expense to date. Furthermore, pension information is disclosed in the footnotes rather than directly in the financial statements making it more “manipulative” a number for management.

3. Name at least three items used in determining pension expense that are "estimates" by management.
PBO - is based on estimated payments into a present value based on estimated retiree population, estimated salary increases, and discount rate
Compensation Rate assumptions
Pension Cost - using estimates of interest cost and expected return on plan assets
Off-balance sheet liabilities

4. What is the PBGC? What is its role?
Pension Benefit Guaranty Corporation
Protect pension benefits in private-sector defined benefit plan

5. Explain how changes in the following pension related accounts/estimates in year t affect future pension cost (in year t+1); be clear as to which component of