Shocks Seen in New Math for Pensions: Companies' net worths wiped out?

[DeepModem Mom]

NYT: Shocks Seen in New Math for Pensions
By MARY WILLIAMS WALSH
Published: March 31, 2006

The board that writes accounting rules for American business is proposing a new method of reporting pension obligations that is likely to show that many companies have a lot more debt than was obvious before.

In some cases, particularly at old industrial companies like automakers, the newly disclosed obligations are likely to be so large that they will wipe out the net worth of the company.

The panel, the Financial Accounting Standards Board, said the new method, which it plans to issue today for public comment, would address a widespread complaint about the current pension accounting method: that it exposes shareholders and employees to billions of dollars in risks that they cannot easily see or evaluate. The new accounting rule would also apply to retirees' health plans and other benefits.

A member of the accounting board, George Batavick, said, "We took on this project because the current accounting standards just don't provide complete information about these obligations."...

***

The new method proposed by the accounting board would require companies to take certain pension values they now report deep in the footnotes of their financial statements and move the information onto their balance sheets — where all their assets and liabilities are reflected. The pension values that now appear on corporate balance sheets are almost universally derided as of little use in understanding the status of a company's retirement plan....

http://www.nytimes.com/2006/03/31/business/31pension.html

[HereSince1628]

1. Companies not vesting employees pension funs have fucked

the American labor force. The number of people denied their promised pensions due to poor executive/management decisions is in the many millions.

Historically worker pensions and old age security were very important to the Socialist and Fascist movements. Corporations and the Republicans who serve them need to think seriously about what sort of reservoir of blow-back they are storing up.

The 2K-teens could become a very very ugly time in North America. Millions of boomers retiring and scores more millions of still working generations resentful of having to cover that cost due to corporate irresponsibility.

[Warpy]

2. Don't forget healthy older boomers taking jobs ordinarily

done by kids to supplement that social security income. We're already seeing granny at the drive up window during school hours. She's going to be there at all hours from now on.

[cyberpj]

19. She's been there for quite a while. Nothing new there. BUT...

pretty soon she'll be nudged out by immigrants wiling to work for lower wages.

[saigon68]

21. immigrants working for NO BENEFITS

Their Health care picked up by the taxpayer

[Roland99]

11. Take away pensions, medicare, soc. security and kill off the population

What's left?


Fodder for a military, execs to run companies, and enough able-bodied people to man what few factories are left.

[0007]

17. Like Rummy sez, travel light and fast and have a good looking

corpse when ya die.

[WhiteTara]

22. send them to the army, there are

no factories left.

[Kagemusha]

3. The accounting change reflects that net worth never existed.

It was the old value that was the illusion, not the new

[donco6]

4. This is a good change by FASB.

But it will really have an impact on business.

[mike_c]

5. it damn well should-- they've been hiding this for too long, IMO...

eom

[AnneD]

15. Or using it

as a slush fund or till to prop up share price. It is about time it be reflected on the books IN THE OPEN. Now, the next reform is to have the employee pension be first inline as a creditor when the company tanks.

[indypaul]

18. Not to mention

financing some of the now famous mergers and acquisitions.

[Coventina]

6. Astronomical salaries given to executives wipe out companies' net worths

Yep, it's the guy working the line that causes the company to go bankrupt.

Not the factory owner making $100 million a year between his salary, benefits, stock options and other perks.


:puke:

[Sgent]

7. From the article

<snip>
Using information in the footnotes of Ford's 2005 financial statements, Ms. Pegg said that if the new rule were already in effect, Ford's balance sheet would reflect about $20 billion more in obligations than it now does. The full recognition of health care promised to Ford's retirees accounts for most of the difference. Ford now reports a net worth of $14 billion. That would be wiped out under the new rule. Ford officials said they had not evaluated the effect of the new accounting rule and therefore could not comment.

Applying the same method to General Motors' balance sheet suggests that if the accounting rule had been in effect at the end of 2005, there would be a swing of about $37 billion. At the end of 2005, the company reported a net worth of $14.6 billion. A G.M. spokesman declined to comment, noting that the new accounting rule had not yet been issued.
<snip>

This is a good thing. It will cause some pain short term, but the companies and those who deal with them (suppliers, unions, employees, investors) need to know exactly where they stand.

[donkeyotay]

8. Never did understand why business didn't unite with citizens for

healthcare. Supposedly universal healthcare is expensive. Apparently, so is the alternative:

"The full recognition of health care promised to Ford's retirees accounts for most of the difference."

[krkaufman]

9. Health care isn't too expensive at all to the corporations...

... if they can discard all their health care (and pension) obligations.

[Roland99]

12. Social healthcare and remove that burden from corporations.

Setup a very rigid auditing board for the national healthcare program and enforce it like mad.

[Just Me]

10. Truth in accounting. A novel concept corps will abhor!!!

fer sure

[lovuian]

13. So where did all that money go that was taken out of the

workers check for their pensions??? and the company advertized that they would get pensions
Be loyal Work hard and you will have a nice pension waiting for you

Where O Where did the money go???

Someday all these Pension fund commissioners are going to be put in jail for stealing...

Labor in America is going to have to rise up again... in Europe its required on the board of their companies that Labor is represented... this is the result of no labor representation on these boards of the companies...

[clar8130]

16. defined benefit plans

My guess is that the companies that will be hardest hit are those with old defined benefit plans, which did not require workers to contribute.

DB plan accounting is a nightmare, which was hinted at in the article. Since the dotcom crash, there are sooooo many DB plans in trouble...

[Sgent]

20. Money was never there

A good portion of it dissappeared in the stock market crash in 2001.

The rest of it was never there in the first place due to bad accounting rules.

Old accounting rules:

Put in $800/yr to pay a pension of $30k in 30 years, assuming a 12% ROI.

New accounting rules:

Put in $3700/yr to pay a pension of $30k in 30 years, assuming a 8% ROI during earning years and 5% during payment years.

Oh yea -- also make up (with interest) all back payments.

[DUHandle]

14. I read about this a while ago

One of the worst impacts will be on municipal pensions, which will need a cash infusion to comply with the rules.