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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: orkrious who wrote (208291)12/7/2002 12:51:03 PM
From: mishedlo  Read Replies (2) of 436258
 
Ork it is pure horseshit and 100% depends on the ASSUMPTION of the rate of return will be what it states. In IBM's case that is 8.5%. With a significant piece in bonds at 4% or whatever they might need 15% return on equities or even more to get 8.5%.

The problem is the accounting rule that lets companies assume a rate of return on their earnings whether or not it is achieved. So, by adding cash in the pension fund at an assume rate of 8.5% instead of cash at a real rate of 1%, yes it will help earnings. ON PAPER. The problem comes in down the road when that 8.5% is not achieved. IBM did one even worse because 1/2 that $3B was in IBM stock. What is liklihood IBM stock rises 8.5% next year?

M
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