Volume 17, No. 12

 

A Pension Deficit Disorder: End Of Year Issues:  If 2008 ended today, there would be no tears shed on Wall Street to mourn its passing. (Except for the shorts who made the right calls on financial institutions.)

2008’s effects on the financial condition of companies in 2009 are starting to be puzzled out by Wall Street, however. When 2008 finally does end, the funded status of defined benefit pension plans on that day will have ongoing effects in 2009. Unless there’s a sudden updraft in world markets, pensions will likely be seriously underfunded. That will have consequences for 2008 balance sheets - and 2009 reported earnings and cash outflows.

Precise estimates of how funding status will affect current balance sheets and future earnings and cash flows are not possible, but investors can at least develop ranges of outcomes to help them consider exposures. Offered here: reminders on pension reporting mechanics to help one better evaluate a firm’s pension prospects.

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