Discount rate changes subsequent to adoption of SFAS-158: The effect of the new liability reporting requirements

SFAS-158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans", was adopted in 2005, and implemented by firms for fiscal periods starting after 12/15/06. The reporting requirements of SFAS-158 give firms a new and different set of incentives to manipulate their pension assumptions. The purpose of this paper is to examine the changes in the interest rate use to discount the projected benefit obligation upon implementation of SFAS-158. It is found that firms with higher pension obligations, measured as a percentage of firm assets, increased their discount rates relative to those firms with lower pension obligations. This finding holds even after controlling for a "reversion to the mean" effect for the pension discount rate.