Fair-Value Pension Accounting

We compare the value and credit relevance of financial statements under fair-value and smoothing (SFAS-87) models of pension accounting. The fair-value model does not improve the value relevance of the balance sheet and may impair that of income and the combined financial statements, unless transitory unrealized gains and losses (G&L) are disaggregated from more persistent income components. Further, the fair-value model improves the credit relevance of the balance sheet but impairs that of income and the combined financial statements, unless G&L is separated from other income components. Overall, our results suggest there are no informational benefits to adopting a fair-value pension accounting model