The Justa and Lars Honors Bob Brinker Investment Club Thread Message Board

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Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread

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Dec 10 4:00 PM EST

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To: Wally Mastroly who wrote (2619)	6/20/2003 10:29:10 AM
From: Boca_PETE	Read Replies (1) of 10065

Wally M: RE: ("Pension woes & falling interest rates") Pension bookkeeping rules for adding under-funding charges to the income statement aside, from my viewpoint a Plan's ability to meet its' short to intermediate term benefit cash outflow requirements is most germane to a Plan's health or non-health. Because Pension Plan liability obligations represent the PRESENT VALUE of ESTIMATED future pension obligations, such liabilities will increase as interest rates fall making the Plan appear more under-funded. But by the same token, such liabilities will fall as interest rates rise thus lowering the liability present value and lessening any previous appearance of under-funding. The other major component in measuring under-funding, Pension Plan Assets, will rise and fall depending upon the Plan's investments chosen by its' investment managers. Unless asset declines are of a permanent nature (ie. Enron's common shares and their ilk, permanent crash in real estate investment values from some exogenous event), rises and declines their pension plan asset values will tend to correct over the years and offset if properly diversified. The goal of accounting for pension costs on a company's books is to recognize them over the working life of company employees. It's a very complex computation that pension actuaries are required to make each year for each company's pension plan(s) tailored to each plan's unique terms and company circumstance. The computation must include many subjective estimates and assumptions that are updated annually. You get an idea of this complexity by reading the pension footnote disclosure for any large sized public company in their annual report or SEC Form 10K. Bottom line is that I would not get overly alarmed by some journalist's article on this issue unless the author had a substantial background and credentials that specialized in pension plan actuaries and pension plan accounting. More important in my view would be the company's independent actuary and auditor's view of the Pension Plan's health. JMHO, P

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