An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Thomas D. Dowdell
North Dakota State University

Bonnie K Klamm
North Dakota State University

Roxanne M Spindle
Virginia Commonwealth University

Abstract: Contributions to defined benefit plans can be a significant cash flow item. It is difficult to make reliable estimates from the accounting numbers. SFAS 132 (FASB 2003) now requires disclosure of an estimate of the next year’s plan contributions, but FASB refused to require disclosure of the tax funding status used to calculate contribution limits since the Board felt the additional complexity would outweigh potential benefits. We investigate whether tax funding status provides incremental information for predicting contributions. For 5,937 firm years from 1995 through 2002, we find that the accounting and tax funding statuses are positively, but not perfectly correlated. We find contributions are significantly higher and more frequent for companies with poorer tax funding, controlling for GAAP funding status. However, the increase is small in magnitude, suggesting that a cost/benefit evaluation is required before any recommendation can be made.

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