A survey of 122 Chief Financial Officers (CFOs) by Grant Thornton showed that 84 percent support the Financial Accounting Standard Board (FASB) proposal to report the level of pension funding on the balance sheet. The response came as a surprise to many, but “because corporate pension information is already disclosed in the notes to the financial statements,” said John Hepp, a senior financial professional-standards manager at Grant Thornton, according to CFO.com, finance executives would not object to the new rule. “The results of the survey may also reflect the long-term shift from corporate defined benefit plans to defined contribution programs such as 401(k) and 403(b) plans. The latter will not be affected by the FASB proposal,” Hepp added.
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The CFOs surveyed by Grant Thornton came from companies ranging in size from more than $2 billion in annual revenues, to companies with less than $50 million.
S&P 500 companies, carrying large amounts of cash at the end of 2005, “may use excess cash to increase funding levels of pension and, potential retiree health care liabilities”, a Goldman Sachs report issued on Monday says, according to pionline.com. “With final pension reform changes likely to be enacted over the next several weeks, therefore providing plan sponsors with greater clarity as to the rules and regulations for the next several years, some companies may use excess cash to raise funded levels,” the report said. The report also noted that the accounting rule change proposed by the FASB “could provide further incentive for plan sponsors to use excess cash to increase funded levels and avoid notable balance sheet adjustments.”
The Grant Thornton survey found that 84 percent of the CFOs thought Congress should make it tougher for companies to turn over their pension plans to the Pension Benefit Guaranty Corporation (PBGC) which is funded entirely by member premiums, CFO.com says. Executives from firms that have kept pace with pension contributions object to paying higher premiums to support companies in Chapter 11, with seriously underfunded plans.
House and Senate negotiators are working on a pension reform bill that may make it to the floor in two weeks, Reuters reports. The Senate version of the pension bill includes special relief for struggling airlines, and some congressmen fear that the auto companies are about to unload their obligations on the PBGC. The PBGC is running a $22.8 billion deficit. The Bush administration opposes special relief for certain industries or companies, Reuters says.
In an effort to boost returns, pension fund managers are turning to investments in hedge funds, according to a recent study by State Street Corp., reported in Reuters. The California Public Employees' Retirement System, CalPERS, the biggest pension fund in the U.S., invests approximately $2.5 billion of its $207 billion in hedge funds, and other pension funds are following their lead. Forty-four percent of pension funds reported investing at least 10 percent of their money in hedge funds last year, up from 35 percent the year before.