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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (67925)	9/20/1999 10:47:00 AM
From: Knighty Tin	Read Replies (3) \| Respond to of 132070

Wayne, See Tip's note below yours. IBM seems to have hit the pension cash drawer for the last time. As I've said many times, as far as eps go, many of these firms are hedge funds waiting for the first misstep.

To: Freedom Fighter who wrote (67925)	9/20/1999 10:53:00 PM
From: Kerry Phineas	Respond to of 132070

Wayne, my firm probably had a bit to do with that, but unfortunately (thank god?) I'm not a pension actuary so I don't know too much about it. In general, a pension plan will make simplifying assumptions such as that the stock market will increase 12% a year because it has been doing so in the recent past, and that interest rates will stay at 6.5% because thats where they've been in the recent past, or salaries will rise by 4% because thats the historical trend... mortality and retirement assumptions aren't as relevant because they're fairly predictable. Of course when the market rises 20% or 30% in a year you have a huge experience gain that is either amortized or credited (I don't know); imo, though, the problem comes from the simplifying assumptions about future investment return and the interest rate used for discounting because they aren't changed after oversize return and there isn't an adjustment for the risk of collapse. Just another example of the reflexive nature of the stock market; there's definitely a risk there waiting to happen, but will be interesting to see just what does come out of it, and I'm far from an expert. I'll grill one of the EA's next time I get a chance.