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The stock-market tumble at the end of 2018 could punish earnings at some companies because of how they account for

fluctuations in their pension plans. Those companies count gains and losses in their pensions and retiree-benefit plans in the same year that they occur, as opposed to spreading them out over a number of years. Some companies were on track for much of 2018 to get an earnings boost until markets swooned in the fourth quarter. Now, they may report pension losses that will weigh on their bottom lines, or pension gains will be far lower than would have been expected earlier in the year. Many other companies with defined-benefit plans could see their earnings in 2019 and beyond hit by the markets' stumbles, though the effect will be more gradual and harder to notice. Use of the mark-to-market approach records changes more immediately than the other option, in which companies still "smooth" their plans' results into earnings over a period of years. Mark-to-market can make companies' earnings more volatile, but it is simpler and more transparent for investors. Until last fall, mark-to-market companies stood to record pension gains for 2018. The S&P 500 was up 9% for the year through September, helping to raise the value of pension plans' assets. Interest rates had risen, thus reducing the current value of the plans' future pension payments to retirees. Those twin developments make a pension plan healthier and better-funded, and those improvements can benefit a company's earnings.

Answer the following questions:


1. How are pension gains and losses calculated for financial statement purposes?

2. What was the status of the stock market at the end of 2018? How was the market doing before the fall of 2018?

3. How are companies' pension calculations affected by the status of the stock market at the end of the year? What is the mark-to-market approach? How are companies using that approach affected?

4. What is the other option for pension accounting? How are those companies affected by the stock market?

5. Why would companies use the mark-to-market approach? Why would a company choose to use the other option? What are the benefits and drawbacks of each?

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