Hostname: page-component-77f85d65b8-t6st2 Total loading time: 0 Render date: 2026-03-30T03:28:12.936Z Has data issue: false hasContentIssue false
  • English
  • Français

The strategic use of pensions by not-for-profit organizations

Published online by Cambridge University Press:  15 February 2018

THAD DANIEL CALABRESE Open the ORCID record for THAD DANIEL CALABRESE [Opens in a new window]  and
ELIZABETH A. M. SEARING Open the ORCID record for ELIZABETH A. M. SEARING [Opens in a new window]
THAD DANIEL CALABRESE
Affiliation:
Robert F. Wagner Graduate School of Public Service, New York University, New York, USA (e-mail: thad.calabrese@nyu.edu)
ELIZABETH A. M. SEARING
Affiliation:
Rockefeller College of Public Affairs and Policy, University at Albany (SUNY), Albany, New York, USA
Get access Rights & Permissions [Opens in a new window]

Abstract

Defined benefit pension plans are an important and unexplored aspect of not-for-profit compensation, covering between 15% and 21% of the estimated national not-for-profit workforce. Here we consider whether pension contributions and actuarial assumptions are mechanisms for achieving not-for-profit financial management objectives such as smoothing consumption, managing reported net earnings, and minimizing pension liabilities. The empirical results indicate a variety of these behaviors. Not-for-profit pension plan sponsors use accumulated net assets to smooth consumption. Further, not-for-profits manage reported profits downwards when they exceed expectations by increasing pension contributions, but both minimize contributions and liberalize actuarial assumptions when they underperform relative to their desired earnings targets.

Keywords

Earnings managementnot-for-profitspension contributionsfinancial managementL31L21J32

Information

Type
Article
Information
Journal of Pension Economics & Finance , Volume 18 , Issue 3 , July 2019 , pp. 388 - 414
Copyright
Copyright © Cambridge University Press 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Abraham, A. (2006) Financial management in the nonprofit sector: a mission-based approach to ratio analysis in membership organizations. The Journal of American Academy of Business, 9(2): 212–217.Google Scholar
Andreoni, J., and Payne, A. A. (2003) Do government grants to private charities crowd out giving or fund-raising? The American Economic Review, 93(3): 792–812.Google Scholar
Bergstresser, D., Desai, M., and Rauh, J. (2006) Earnings manipulation, pension assumptions, and managerial investment decisions. Quarterly Journal of Economics, 121(1): 157–195.Google Scholar
Bodie, Z., Light, J. O., Morck, R., and Taggart, R. T. Jr. (1987) Funding and asset allocation in corporate pension plans: an empirical investigation. In Bodie, Z., Shoven, J. B., and Wise, D. A. (eds), Issues in Pension Economics. Chicago: University of Chicago Press, pp. 15–48.Google Scholar
Boris, E., de Leon, E., Roeger, K. L., and Nikolova, M. (2010) Contracts and Grants between Human Service Nonprofits and Governments. Urban Institute, Brief #25. Available at: http://www.urban.org/research/publication/human-service-nonprofits-and-government-collaboration-findings-2010-national-survey-nonprofit-government-contracting-and-grants/view/full_report.Google Scholar
Bowman, W. (2007). Managing endowment and other assets. In Young, D. (ed.), Financing Nonprofits: Putting Theory into Practice. Lanham, MD: AltaMira Press, pp. 271–289.Google Scholar
Bowman, W. (2011) Financial capacity and sustainability of ordinary nonprofits. Nonprofit Management and Leadership, 22(1): 37–51.Google Scholar
Bowman, W., Tuckman, H. P., and Young, D. R. (2012) Issues in nonprofit finance research: Surplus, endowment, and endowment portfolios. Nonprofit and Voluntary Sector Quarterly, 41(4): 560–579.Google Scholar
Brunner, E., and Sonstelie, J. (2003) School finance reform and voluntary fiscal federalism. Journal of Public Economics, 87(9–10): 2157–2185.Google Scholar
Buessing, M., and Soto, M. (2006) Technical appendix for the state of private pensions: Current 5500 data. Center for Retirement Research Issue Brief #42. Available at: http://crr.bc.edu/wp-content/uploads/2006/02/techa_42.pdf.Google Scholar
Calabrese, T. (2012) The accumulation of nonprofit profits: a dynamic analysis. Nonprofit and Voluntary Sector Quarterly, 41(2): 300–324.Google Scholar
Calabrese, T. (2013) Running on empty: the operating reserves of US nonprofit organizations. Nonprofit Management and Leadership, 23(3): 281–302.Google Scholar
Calabrese, T., and Ely, T. L. (2017) Understanding and measuring endowment in public charities. Nonprofit and Voluntary Sector Quarterly, 46(4): 859–873.Google Scholar
Center for Retirement Research (1990–2007) 5500-CRR Data: Panel of Current and Usable Form 5500 Data. Chestnut Hill, MA. http://crr.bc.edu/data/form-5500-annual-reports/Google Scholar
Chang, C. F., and Tuckman, H. P. (1990) Why do nonprofit managers accumulate surpluses, and how much do they accumulate? Nonprofit Management & Leadership, 1(2): 117–135.Google Scholar
Chen, G., and Matkin, D. S. (2017) Actuarial inputs and the valuation of public pension liabilities and contribution requirements: a simulation approach. Public Budgeting & Finance, 37(1): 68–87.Google Scholar
Core, J. E., Guay, W. R., and Verdi, R. S. (2006) Agency problems of excess endowment holdings in not-for-profit firms. Journal of Accounting and Economics, 41: 307–333.Google Scholar
Dechow, P. M., Sloan, R. G., and Sweeney, A. P. (1995) Detecting earnings management. The Accounting Review, 70(2): 193–225.Google Scholar
Denison, D. V. (2009) Which nonprofit organizations borrow?. Public Budgeting & Finance, 29(3), 110–123.Google Scholar
Eldenburg, L. G., Gunny, K. A., Hee, K. W., and Soderstrom, N. (2011) Earnings management using real activities: evidence from nonprofit hospitals. The Accounting Review, 86(5): 1605–1630.Google Scholar
Fama, E., and Jensen, M. (1983) Separation of ownership and control. Journal of Law and Economics, 26: 301–325.Google Scholar
Feng, N. C., Ling, Q., Neely, D., and Roberts, A. A. (2014) Using archival data sources to conduct nonprofit accounting research. Journal of Public Budgeting, Accounting, & Financial Management, 26(3): 458–493.Google Scholar
Franzoni, F., and Marin, J. M. (2006) Pension plan funding and stock market efficiency. The Journal of Finance, 61(2): 921–956.Google Scholar
Gentry, W. M. (2002) Debt, investment and endowment accumulation: the case of not-for-profit hospitals. Journal of Health Economics, 21(5): 845–872.Google Scholar
Giving USA (2010) Giving USA 2010: The Annual Report on Philanthropy for the Year 2009. Available at: http://www.givingusareports.org/products/GivingUSA_2010_ExecSummary_Print.pdf.Google Scholar
Graham, J. R., Harvey, R. H., and Rajgopal, S. (2005) The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(1): 3–73.Google Scholar
Hansmann, H. (1980) The role of non-profit enterprise. Yale Law Journal, 89: 835–901.Google Scholar
Hoerger, T. J. (1991) ‘Profit’ variability in for-profit and not-for-profit hospitals. Journal of Health Economics, 10(3): 259–289.Google Scholar
Kisser, M., Kiff, J., and Soto, M. (2017) Do managers of U.S. Defined benefit pension plan sponsors use regulatory freedom strategically? Journal of Accounting Research, 55(5): 1213–1255.Google Scholar
Krishnan, R., and Yetman, M. H. (2011) Institutional drivers of reporting decisions in nonprofit hospitals. Journal of Accounting Research, 49(4): 1001–1039.Google Scholar
Leone, A. J., and Van Horne, R. L. (2005) How do nonprofit hospitals manage earnings? Journal of Health Economics, 24: 815–837.Google Scholar
Lipsky, M., and Smith, S. R. (1989) Nonprofit organizations, government, and the welfare state. Political Science Quarterly, 104(4): 625–648.Google Scholar
Marwell, N., and Calabrese, T. (2015) A deficit model of collaborative governance: government-nonprofit fiscal relations in the provision of child welfare services. Journal of Public Administration Research and Theory, 25(4): 1031–1058.Google Scholar
Mayer, W. J., Wang, H. C., Egginton, J. F., and Flint, H. S. (2014) The impact of revenue diversification on expected revenue and volatility for nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 43(2): 374–392. doi: 10.1177/0899764012464696.Google Scholar
McGill, D., Brown, K. N., Haley, J. J., Schieber, S., and Warshawsky, M. J. (2010) Fundamentals of Private Pensions, 9th edn. Philadelphia, PA: Pension Research Council.Google Scholar
Modigliani, F., and Brumberg, R. (1954). Utility analysis and the consumption function: an interpretation of cross-section data. In The Collected Papers of Franco Modigliani Volume 6. Cambridge, MA: MIT Press.Google Scholar
Mosley, J. E., Maronick, M. P., and Katz, H. (2012) How organizational characteristics affect the adaptive tactics used by human service nonprofit managers confronting financial uncertainty. Nonprofit Management and Leadership, 22(3): 281–303. doi: 10.1002/nml.20055.Google Scholar
Nelson, A. A., and Gazley, B. (2014) The rise of school-supporting nonprofits. Education Finance and Policy, 9(4): 541–566.Google Scholar
Omer, T. C., and Yetman, R. J. (2003) Near zero taxable income reporting by nonprofit organizations. Journal of the American Taxation Association, 25(2): 19–34.Google Scholar
Parsons, L. M. (2003) Is accounting information from nonprofit organizations useful to donors? A review of charitable giving and value-relevance. Journal of Accounting Literature, 22: 104.Google Scholar
Picconi, M. (2006) The perils of pensions: does pension accounting lead investors and analysts astray? The Accounting Review, 81(4): 925–955.Google Scholar
Rauh, J. D. (2006) Investment and financing constraints: evidence from the funding of corporate pension plans. The Journal of Finance, 61(1): 33–71.Google Scholar
Roychowdhury, S. (2006) Earnings management through real activities manipulation. Journal of Accounting and Economics, 42(3): 335–370.Google Scholar
Salamon, L. M. (1987) Of market failure, voluntary failure, and third-party government: toward a theory of government-nonprofit relations in the modern welfare state. Nonprofit and Voluntary Sector Quarterly, 16: 29–49.Google Scholar
Salamon, L. M., Sokolowski, S. W., and Geller, S. L. (2012) Holding the Fort: Nonprofit Employment During A Decade of Turmoil. Baltimore, MD: Johns Hopkins University, Center for Civil Society Studies. Nonprofit Economic Data Bulletin #39.Google Scholar
Smith, S. R., and Gronbjerg, K. A. (2006) Scope and theory of government-nonprofit relations. In Powell, W. W. and Steinberg, R. (eds), The Nonprofit Sector: A Research Handbook. New Haven: Yale University Press, pp. 221–242.Google Scholar
Thomas, J. K. (1989) Why do firms terminate their overfunded pension plans? Journal of Accounting and Economics, 11: 199–237.Google Scholar
Thomas, J. K., and Tung, S. (1992) Cost manipulation incentives under cost reimbursement: pension costs for defense contracts. The Accounting Review, 67(4): 691–711.Google Scholar
Tinkelman, D. (2010) Revenue interactions: Crowding out, crowding in, or neither. Cheltenham, UK: Handbook of research on nonprofit economics and management, 18–41.Google Scholar
Tinkelman, D., and Donabedian, B. (2007) Street lamps, alleys, ratio analysis, and nonprofit organizations. Nonprofit Management and Leadership, 18(1): 5–18. doi: 10.1002/nml.168.Google Scholar
Trueman, B., and Titman, S. (1988) An explanation for accounting income smoothing. Journal of Accounting Research, 26, 127–139.Google Scholar
Tuckman, H. P., and Chang, C. F. (1992) Nonprofit equity: a behavioral model and its policy implications. Journal of Policy Analysis and Management, 11(1): 76–87.Google Scholar
Vermeer, T. E., Edmonds, C. T., and Asthana, S. C. (2014) Organizational form and accounting choice: are nonprofit or for-profit managers more aggressive? The Accounting Review, 89(5): 1867–1893.Google Scholar
Wing, K. T., Roeger, K. L., and Pollak, T. H. (2010) The nonprofit sector in brief: public charities, giving, and volunteering, 2010. Urban Institute. Available at: http://www.urban.org/research/publication/nonprofit-sector-brief-public-charities-giving-and-volunteering-2010/view/full_report.Google Scholar
Yetman, M. H., and Yetman, R. J. (2012) Do donors discount low-quality accounting information? The Accounting Review, 88(3): 1041–1067.Google Scholar
Yetman, R. J. (2003) Nonprofit taxable activities, production complementarities, and joint cost allocations. National Tax Journal, 56(4): 789–799.Google Scholar
Yetman, R. J. (2007) Borrowing and debt. In Young, D. R. (ed.), Financing Nonprofits: Putting Theory Into Practice. Lenham, MD: Rowman-Altamira Publishing, pp. 243–268.Google Scholar
Zang, A. Y. (2011) Evidence of the trade-off between real activities manipulation and accrual-based earnings management. The Accounting Review, 87(2): 675–703.Google Scholar