Administration March 10, 2005

SEC Scrutinizing Pension Fund Assumptions

October 15, 2004 (PLANSPONSOR.com) - The U.S. Securities and Exchange Commission (SEC) is looking into possible accounting abuses involving companies' assumptions about employee pension funds, according to a Reuters report.
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“We’re looking at assumptions made in connection with pension accounting to determine whether those assumptions were reached to drive earnings results,” said SEC Enforcement Division Director Stephen Cutler, in an interview with Business Week magazine.  

Hundreds of companies last year updated key assumptions in their accounting for post-retirement benefits, Business Week magazine reported in its October 25 edition.  The SEC is looking into whether some of these changes were overly aggressive and made with an eye to enhancing companies’ profits and balance sheet figures, according to the Business Week report, but Cutler declined to identify any of the companies targeted.

Business Week said the areas of SEC concern include:

  • assumptions about the rates of return that pension funds can earn;
  • the level of eventual obligations pension funds must meet, determined by discount rate assumptions; and
  • the level of health care cost inflation and retirees’ medical benefits.

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