It's Magic Money; Criticism Mounts for Companies' Practice
Cleveland Plain Dealer (08/26/00) Vol. 104, No. 34 p.1C; Steffy, Loren

Due to rising stock prices, pension funds have become a significant, yet deceptive, source of reported corporate earnings, as many companies are now using the gains from employee pension funds to inflate earnings. Robert Monks, a principal at Lens Investment Management and a former federal official who administered the principal law governing pensions, called the use of these funds in reports "magic money," and "fiction ... being built into the expectations of a number of companies." If the stock market took a plunge and surpluses disappeared, Monks noted that reported earnings would be hurt significantly. Unlike earnings from operations, companies cannot use pension funds in practice, yet they continue to count the gains in the same way that they count earnings from operations. Companies defend the use of the pension-fund gains, pointing out that the information is available to investors, albeit, usually buried deep in the footnotes of annual reports. The Securities and Exchange Commission has turned its attention to the subject, sending a letter to AICPA suggesting that accountants prompt companies with large pension profits to explain the impact in their annual reports, instead of just listing the profits in the footnotes.

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