Volume 12, Nos. 10 & 11

Pondering Pensions, 2002: The Shrinking Shmoo Of The S&P 500  In the classic comic strip Li'l Abner, shmoos were blobby, shapeless little critters that existed only to please mankind - even if it meant self-sacrifice, which was delicious bounty for humans. Every part of a shmoo possessed value for everyone in mythical Dogpatch. The real-world equivalent of the shmoo is the defined benefit pension plan. Like the amorphous creature in the comics, the formless defined benefit pension plan likewise provides sustenance for retirees, asset managers and pension consultants. For the managements of companies sponsoring the plans, the pension accounting standard governing these financial shmoos provides legitimized earnings management tools. Over the past couple years there's been much panic over perfect storms battering defined benefit pension plans or the pension monster that will suck available capital away from shareholders and into pension funds. For all the fretting, defined benefit pension plans are still shmoos, albeit shriveled ones by this time. Even in their wizened state, they still provide nourishment for their beneficiaries - and they still introduce near-comic economics into the financial statements. The worst may be behind defined benefit plans: this year's stock market performance, combined with the year-to-date rise in long-term bond yields, should alleviate the underfunded status of many plans. Nevertheless, there's still much to cause concern - and to relieve concern. While many grumble about the lack of clarity surrounding pension accounting, there's still a wealth of information available to get the right perspective on pension issues. The shmoo is ever-present in the financials, but not always benevolent to the analyst or investor; using the right measurements buried in the notes helps an investor flush out the rascals.