In order to capture the time frame beginning with the issuance of FRS 17 and
culminating in the issuance of SFAS 158 during which an increased trend in DB plan
freezes has been documented, we identify 147 financially healthy, non-regulated firms
that made announcements to freeze their DB plans during the 2001 to 2006 period and
use a matched sample of 147 DB plan sponsors that did not make a freeze announcement
during this period.We use logistic regression models to test the association of accounting
variables with the pension freeze decision. In deriving our accounting variable of interest,
we isolate the potential incremental impact of pension accounting standards such as
FRS 17 or SFAS 158 on recognized balance sheet information. Specifically, we use the
disclosed off-balance sheet portion of the pension plan’s funded status to measure the
anticipated effect on the balance sheet from likely changes in the US pension accounting
standard. Our findings suggest that, after controlling for other commonly expressed
motivations for freezing (e.g. to alleviate the cost of funding or to improve competitive
position), financial accounting for DB plans is a significant factor that is associated with
the DB plan freeze decision. Our results are consistent with firms anticipating and
reacting to changes in pension accounting standards as an important driver of the
pension freeze decision. Specifically, models capturing balance sheet effects, and in
particular, our variable measuring the incremental SFAS 158 effect are highly significant.
While not the primary focus of our paper, in additional analyses we do not find a
significant association between pension income statement variables, which are
unaffected by SFAS 158, and the pension freeze decision.