The Elusive Relation Between Pension Discount Rates and Deficits

The relation between defined-benefit pension discount rates and funding status is more complex than it might first appear. Existing evidence suffers from estimation biases which makes precise inference unreliable. We document the biases and quantify their impact on inference in relation to corporate window dressing of DB funding status. Our empirical evidence from the UK suggests that pension sponsors use discretion in choice of pension discount rate not only to reduce reported deficits, but also to reduce reported surpluses