Friday, April 11, 2003

new directions in creative accounting [NYT]
America's companies, large and small, had a total pension shortfall of about $300 billion at the end of 2002, according to the government agency that insures pensions. That was by far the largest total deficit in the history of that agency, the Pension Benefit Guaranty Corporation, and it has aroused concerns about the health of the pension system. The worst deficits are found among a relatively small number of companies, in sectors like the auto and airline industries and deregulated public utilities.

Many big companies, most notably General Motors, have said they must make billions of dollars of contributions to their plans in the next few years to comply with funding requirements. Company pension plans have weakened in the last three years as stocks and interest rates have plummeted....

Large companies have lobbied hard for relief. Actuaries say that for every percentage point rise in the rate, pension liabilities appear 10 to 15 percent smaller. The new proposal would raise the rate by about eight-tenths of a percentage point, based on the market environment at the end of last year. Under the old calculation pegged to the 30-year bond, companies would have used a rate of 5.84 percent, versus 6.67 percent under the interim measure. If the new proposal had been in place at the end of the year, the rate would have been 7.42 percent.

For General Motors, to use one very large example, the proposed rate would have reduced liabilities by about $7 billion. G.M.'s level of pension funding would have been 91 percent instead of 75 percent. The funding level of a pension plan determines whether a company must make contributions. Other companies have smaller pension funds than G.M., but their liabilities would also look smaller....

Though companies have made forceful arguments for the proposed change in pension accounting, the change would not necessarily help all companies, or help employees, over the long run. For companies with severe pension deficits and weak finances over all, the change could cover up the weakness longer....

Pension plans are insured by the government, but only up to specific limits, as the pilots of US Airways recently discovered when their benefits were reduced.

Someone who understands accounting better than I needs to analyze this.... 5 minutes later: like, say, see the forest. esp. here:
In other words, they want to CLAIM that they are earning up to 10% on their accounts when calculating how much they will have in their pension accounts, which means that if they do NOT earn 10% (and they aren't), the funds won't be there for retirees and they will have to reduce promised payments. As the NYTimes story says, allowing companies to claim high returns also means that their shortfalls are actually as much as double what they are currently claiming! Maybe even more.
more from the 1/13/03 Times.

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