DISHONORED CONTRACTS - ACCOUNTING AND THE EXPROPRIATION OF EMPLOYEE PENSION WEALTH

There has been growing public disquiet in the U.S. and in the U.K abou t takeovers aimed at seizing the excess in employee pension plans. Som e critics have argued that expropriation of the accounting income lodg ed in the takeover target's pension surplus has been a primary motivat ion for these takeovers. Specifically, two questions have been raised about such transactions: first, whether such terminations violate impl icit agreements with employees, and thus usurp the latter's legitimate claim to the pension surplus. Second, whether management's betrayal o f employee trust increases contracting and monitoring costs in the eco nomy at large. Financial reporting appears to exacerbate these problem s: GAAP, under FAS 36, overstated the pension excess by undervaluing p ension liabilities; the latter being calculated on an accumulated bene fit basis rather than a going concern (''economic'') basis. Reporting this amount underscores the amount that could be expropriated by reneg ing on implicit pension agreements via a takeover and termination. Thi s study suggests that the prospect of capturing pension excesses motiv ated a significant number of takeovers between 1981 and 1985. FAS 87 c hanged pension disclosure requirements after 1986 and thus remedied so me, but not all, of the technical deficiencies of FAS 36. This change affirms, rather than refutes, the primary thesis of this study, howeve r: that accounting is a malleable and contested social practice that i s best understood (theorized) as a product of struggle and conflict, n ot as a faithful representation that unproblematically reflects an und erlying, ''eternal'' economic truth. The study shows that, insofar as pension terminations that abrogate implicit contracts are encouraged b y the prospects of seizing the accounting income lodged in the pension surplus, questions should be about accounting's partisanship in such distributional disputes.