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

Sharad C. Asthana
Temple University

Abstract: This paper presents evidence of discrimination in favor of highly compensated employees by qualified pension plans. Defined-benefit pension plans that are dominated by highly compensated employees tend to be overfunded (to counter the risk of premature plan termination), use aggressive actuarial assumptions to disguise the overfunding, invest their pension assets in low risk portfolios, then contribute beyond the minimum amount required under Internal Revenue Code to compensate for the lower returns on investments and stay overfunded. These actions contradict the nondiscrimination provisions of qualified pension plans under Employee Retirement Income Security Act and Internal Revenue Code, which prohibit favorable treatment for highly compensated employees.

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