Volume 14, Nos. 6 & 7


Pondering Pensions: How They Affected The S&P 500 In 2004  There are two truly evergreen issues in accounting. One is stock options, the other is accounting for defined benefit pension plans. Full of legal constructs to begin with, the accounting for defined benefit plans provides plenty of information for investors to evaluate - if they can find their way through the Byzantine disclosures. Investors treated pension plans with indifference during the bull market of the 1990's; they were rattled out of their slumber when the bear market hit and interest rates declined. That whipsaw effect drove investors to worry about pension plans as never before. Since 2003, plan economics have improved - and so have disclosures - but investors still harbor concerns about pension plan effects on corporate reporting and shareholder returns, and rightfully so. Defined benefit pension plans are obscure facets of corporate life that can affect management decisions about capital allocation and even play a role in determination of management bonuses. It makes only good sense for investors to observe pension activity - and that's the purpose of this report.

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