An AT&T news release said the gains and losses will now be recognized in the year in which they are incurred, rather than amortized over a period of many years, and recorded on the income statement in the fourth quarter each year. Further, AT&T will book service costs, interest costs and expected return on assets on a quarterly basis, with an annual adjustment taken each fourth quarter to reflect actual return on assets, changes in discount rates and other actuarial assumptions.
According to the news release, AT&T expects the change to a market-based approach will result in simpler, more transparent financial results by linking results directly to current market returns, interest rates and health care costs. The change will not impact AT&T’s cash flow or pension funding requirements.
AT&T expects the impact of this accounting change on its fourth-quarter 2010 results to be a pretax, noncash charge of approximately $2.7 billion, or $0.28 per share. This charge is driven by a reduction in the benefit plan discount rate from 6.5% to 5.8%, partially offset by higher-than-expected returns on benefit plan assets and favorable health care cost trends in 2010.