Indian Defined Benefit Pension Plans: Evidence on Investment Risks,Fund Mandates and Funding Levels

Abstract

Indian companies are to move towards an International Financial Reporting Standards (IFRS)-adapted regime for accounting pension costs. The Indian Accounting Standard (Ind AS) 19 on Employee Benefits has been adapted from International Accounting Standard (IAS) 19. As the new regime provides greater forbearance to the volatility of asset returns by including these as a balance sheet item in Other Comprehensive Income (OCI), we take stock of the investment practice of the defined benefit pension plans of leading Indian companies, namely, the National Stock Exchange (NSE) 50 companies. We present evidence on (i) investment risks, (ii) fund mandates and (iii) funding levels using information from the companies’ financial statements for the financial years (FY) ending 2014 and 2015. We employ non-parametric statistical tests, namely, the Mann–Whitney U test (Mann and Whitney, 1947) and the chi-squared test, to evaluate the linkage between investment risks, fund mandates and funding levels of the NSE 50 companies’ defined benefit pension plans.

Keywords

Fund mandate funding level Ind AS Indian defined benefit pension investment risks other comprehensive income pension costs risk ratio

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