Volume 14, No. 8

 

Pension Puzzlement: Effects On S&P 500 Balance Sheets  It's widely understood that the income-smoothing mechanics of defined benefit pension plan accounting brings goofy results into the income statement. Scrutiny of expected returns on plan assets was once the province of only hard-core footnote readers; now, even the most junior of equity analysts usually understand that this is not real income to a firm and its shareholders, but more or less an accounting hairball for minimizing reported pension costs and making them less jumpy. In an earnings-driven investment world, the balance sheet doesn't get its due - until it's too late, sometimes. Statement 87 accounting for pensions introduces a surprising amount of pseudo-assets onto corporate balance sheets. There's enough information provided to investors for sorting out pension effects on balance sheets - and in the process, presenting the balance sheet in a way that best depicts the rights and responsibilities of the firm. This report shows how to do it.

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