FASB Cash-Balance Pension Change Could Hit Earnings Dow Jones Newswire (05/21/03) p.50; Dale, Arden
According to Watson Wyatt benefits consulting global director Eric Lofgren, the cash-balance pension changes recently proposed by the Financial Accounting Standards Board (FASB) could hurt fourth quarter earnings at companies with such plans. The proposal would force companies with cash-balance plans to measure liabilities against government bond yields instead of high-quality long corporate bonds, which would drastically increase liabilities. The FASB has been examining pension accounting rules in recent months due to reports from a number of companies that their pension plans are underfunded by as much as billions of dollars. In addition, some companies have talked about contributing billions to their funds, oftentimes significantly skewing their earnings statements. Other companies have engaged in "smoothing," which involves the amortization of certain assets and obligations as income or expenses or the reporting of expected returns on assets instead of real losses or gains. As a result, the FASB could eventually require more extensive reporting on pension assets, anticipated asset return rates, corporate cash-flow, and pension costs.