20-7 Pension accounting 4

20-7 Pension accounting 4 - US pension accounting shift...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
US pension accounting shift ‘would hit equities’ Source: Financial Times, 21 November 2005 Proposed changes to pension fund accounting in the US are likely to prompt a shift of investment away from equities and into bonds while speeding the de- mise of defined-benefit plans, according to invest- ment experts. The accounting changes under consideration by the Financial Accounting Standards Board would require defined-benefit funds, which hold about Dollars 4,000bn (Euros 3,400bn, Pounds 2,340bn) in assets, to stop “smoothing” their returns and instead report actual returns each year. Fund managers argue that the changes will create volatility in corporate earnings because companies would be required to include their pension returns in their quarterly earnings statements. “Company earnings would (be) at the mercy of what the pension fund can earn in the stock and bond mar- kets,” said Alistair Lowe, director of global asset allocation at State Street. The changes face “vigorous opposition” from the private sector, according to Michael Moran, vice- president of portfolio strategy at Goldman Sachs. “For companies that still maintain large pension plans, these changes could be enormous,” he said in a recent report. Mr. Moran said the changes would have an impact on capital markets, with investment flowing from equities to fixed income as pensions tried to limit risk by matching their investments to their long-term liabilities. The asset allocation shift would lower returns, and funds would seek to redress this by using more de- rivatives and alternative investments such as hedge funds. A report by the Committee on Investment of Em- ployee Benefit Assets has estimated that switching to “mark to market” accounting would result in Dollars 290bn in funds being shifted from equities to bonds. Business lobbyists in Washington warn against at- tempts to overhaul the current system. Bruce Josten, executive vice-president at the US Chamber of Commerce, said the debate could turn into “another propellant” for non-union companies to move away from voluntary private pension plans, by forcing them to move too much capital to fund their
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/03/2010 for the course ACCT 202 taught by Professor Yang during the Spring '10 term at UPenn.

Page1 / 2

20-7 Pension accounting 4 - US pension accounting shift...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online