American Accounting Association 2006 Midwest Region Meeting March 30 – April 1 Chicago, Illinois

Friday, March 31, 4:00 p.m. to 5:40 p.m. Concurrent session 4C - Cash Flow, Accruals & Earnings Management (Financial Accounting and Reporting)

Title: Predicting Cash Flows Related to Defined Benefit Plan Contributions

Thomas D. Dowdell, Jr. North Dakota State University	Roxanne M. Spindle Virginia Commonwealth University
Bonnie K. Klamm North Dakota State 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.

Back to the program