Executives Criticize Proposed Pension Rules

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Executives Criticize Proposed Pension Rules

LA Times, July 18, 2003

As corporate America struggles with rising pension costs and liabilities, a group representing senior corporate executives is lobbying against a plan to force companies to give more information about their pension plans.

In a letter to U.S. accounting rule makers this week, Financial Executives International argued that current efforts to increase pension disclosure would simply result in further confusion on an already complex subject. FEI counts chief financial officers and senior finance executives among its members.

"The information that's currently disclosed is very complicated, and we don't think very many people understand it," said Dean Krogman, vice president of technical activities at FEI. "To lay a whole slew of new requirements is going to make it more complicated, difficult to prepare and costly too."

A prolonged bear market in the last three years and falling interest rates have hurt pension fund returns and increased pension costs. Many large companies such as IBM Corp. have been forced to divert cash and stock to prop up their pension funds.

The Financial Accounting Standards Board, which sets U.S. accounting rules, last month agreed on a set of new data that companies must provide on the health of their pension plans. The tentative decisions are part of a broader rule the board is developing to improve the information available to investors on a subject that few understand, even though it has garnered plenty of attention in recent months.

Among other things, companies must disclose where their pension funds are invested — such as stocks or bonds, for example — and the expected rate of return on each group of assets under the proposed guidelines.

Companies also would be required to report pension costs on a quarterly basis and disclose them on their income statements. Currently, details on pension plans can be found only in a company's annual report. Companies also would have to estimate future contributions to their pension plans and expected benefit payouts.

"We believe that these increased disclosures would result in disclosure overload," FEI said in its letter to the board. "We believe that a comprehensive review of the compliance costs should be undertaken and that such a review will show that the costs to comply significantly outweigh the benefits."

Instead, FEI suggested that companies disclose how much cash they would be required to pump into their plans based on regulatory requirements and their accumulated benefit obligations, which represent the pension obligations a company currently faces. Companies must record a liability on their balance sheet if the funds in their pension plan fall below that level.