Actuaries, Financial Economists and Accountants’ Contributions to GASB's 'Pension Project': An Ethical Perspective

Abstract

This study focuses on the Governmental Accounting Standards Board’s (GASB) Pension Project which, over 2009-2012, deliberated a highly contested issue over the “correct” discount rates to be used in the discounting of pension liabilities on government financial statements. We claim that this debate comprises an ethical dimension and analyze the ethical framework underlying the arguments used by various groups of experts -- financial economists, actuaries and accountants -- involved in the consultation process orchestrated by GASB. We find that, despite the unprecedented economic consequences associated with the discount rate debate, these groups of experts all predominantly favor deontological arguments. One exception is notable: when experts act as lobbyists to support the interests of one specific party (e.g., plan sponsors), we find that they are more likely than their “independent” peers to hybridize their deontological thinking with consequentialist arguments. This specificity however fades away with time. When left by themselves and among themselves during three rounds of consultations, experts’ preference for deontological -- rather than consequentialist or hybrid arguments -- reinforces itself. At the end of the consultation period, GASB is left with two contradictory opinions, each supported by distinct deontological arguments, and ends up choosing a weighted average of both. Consequentialist arguments, prevalent in the public debate largely echoed by the press but absent from GASB’s Pension Project debate, are therefore not taken into account -- at least not explicitly -- in GASB’s final decision. This study contributes to the literature on the role of experts in democracies and, following the precursor work by Ruland (1984) and Zeff (1978), adds an ethical theory layer to our understanding of how those involved in accounting standard setting processes interact and make decisions.