Pension Income Belongs Only in Pensions
Dow Jones Newswire (05/20/02) p.3B; Colter, Gene

The new corporate-earnings guidelines issued by Standard & Poor's include stipulations that stock options be counted as expenses and that pension income not be included in core earnings--the latter stipulation being one that has been supported by Federal Reserve Chairman Alan Greenspan, among others. The justification for the pension-related stipulation is that pension costs should be counted as an expense because they are part of employee compensation, but that gains by a pension fund do not reflect the underlying performance of the company and should not be counted in the company's financial performance. Many companies today use "overfunded" pensions as a means of reducing expenses, but the author of this opinion piece argues that the Standard & Poor's guidelines are correct to oppose this practice. It is questionable whether there is even such a thing as an overfunded pension, he writes, because the "extra" money in a fund ought to be considered a hedge against the potential future cost of topping off a fund that performs poorly in a lean year. In addition, he writes, it should not be argued that this exercise is on the way out simply because of the trend toward using defined-contribution plans rather than defined-benefit plans, because many pensioners remain on defined-benefit plans, and some companies are switching back to them in response to Enron-related pension issues.

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