Report: Pension Accounting Targets Chosen for Size

October 29, 2004 ( - Federal securities regulators had one criteria for the half-dozen targets for its latest pension fund accounting probe: their large size.

Reuters reported that the US Securities and Exchange Commission (SEC) has no evidence of any wrongdoing by the six companies. The six are currently the only companies being looked at, the Reuters’ sources said. The SEC determined that very large pension plans could present the greatest temptations for overaggressive accounting and based its selection of the six companies on that theory, said the sources who asked not to be identified.

Automakers General Motors Corp. and Ford Motor Co. last week acknowledged receiving requests for information about their pension and health-care accounting from the SEC. Aircraft maker Boeing Co., air carrier Northwest Airlines Corp., auto parts maker Delphi Corp. and truckmaker Navistar International Corp. have also acknowledged being targets (See  SEC Pension Probe Now Includes Navistar ).

Two weeks ago, SEC Enforcement Division Director Stephen Cutler said in a Reuters interview that the commission was looking into possible accounting abuses involving companies’ pension assumptions “made in connection with pension accounting to determine whether those assumptions were reached to drive earnings results.” According to the Reuters sources, the SEC is concerned about rates of return assumptions, the level of eventual obligations they must meet as determined by discount rate assumptions, and the level of health-care cost inflation and retirees’ medical benefits.

Minor changes in these assumptions – such as overestimating fund returns or underestimating health-care cost inflation – can sometimes dramatically beef up pension fund gains, with proceeds above fund costs flowing to the corporate bottom line.

The SEC is concerned generally about the possibility of overaggressive pension and health-care bookkeeping being used as a way to boost corporate profits, the sources said.