This study examines the selection of discretionary actuarial assumptions (discount rate, inflation, salary growth) for assessing projected benefit obligations under IAS 19 in Brazil, an emerging economy.
A sample of Brazilian companies sponsoring pension plans between 2010 and 2023 was analyzed. Panel data regression models were estimated to examine the relationship between the selected actuarial assumptions and key financial indicators of the sponsor firms.
Sponsor firms with pension plan deficits or high leverage tend to choose higher discount rates, reducing their obligations. In contrast, no similar pattern was observed for the inflation or salary growth assumptions. Considering the results, and following the IAS 19 revision, discount rate selection does not appear to be systematically associated with pension fund (PF) assessment results. However, the evidence from sponsors' valuations suggests the presence of differing dynamics, highlighting a discrepancy between sponsor firms and PF assessments.
Our findings highlight the need for policies that reduce disparities between sponsor and PF assessments. These inconsistencies threaten the faithful representation of pension obligations and may mislead stakeholders. Closer oversight and clearer guidelines are essential, since PF valuations directly affect sponsor contributions and financial reporting when plans are in deficit.
Most of the research on discretionary actuarial assumptions focuses on developed countries. This study seeks to bring to the fore Latin American evidence following the adoption of IAS 19. It highlights how Brazil's regulatory divergence (PFs and sponsors) offers unique insights into pension accounting practices.
