Category Archives: Accounting Policy

The Underfunding of Corporate Pension Plans [Real Clear Markets]

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The current low level of interest rates poses a big challenge to pension plans with benefits guaranteed by their corporate sponsors. These pension plans have a difficult time earning a decent return from high-quality bonds with relatively low risk.

In response, Congress has recently revised the rules for calculating the obligations of corporate pension plans. But these revised rules allow corporate pension plans to assume that they will earn unrealistically high returns. As a result, many corporate sponsors will not contribute enough to meet their likely benefit obligations to retirees.

Read the rest at RealClearMarkets.com

A realistic discount rate for pensions [FT.com]

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Co-authored with Theresa Hamacher.

Private pension funds across the world are finding it more difficult to meet their obligations to future retirees. In July 2012, the 100 largest US private pension funds faced a $533bn shortfall, according to the consulting firm Milliman. In the same month, private pensions in the UK faced a £283bn shortfall, according to the government’s insurer of pension plans.

Read the rest at FT.com

Pension ‘savings’ in transportation bill may be costly [Washington Post]

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The transportation bill that Congress passed this summer is financed, in part, with a budget gimmick: Lawmakers changed the funding rules for corporate pension plans. These changes help the federal budget in the short term by reducing the tax deductions that corporations take for contributing to these plans — thereby reportedly increasing their taxable income.

Read the rest at washingtonpost.com

Mandatory audit rotation risks outweigh benefits [Economia]

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Since the financial crisis, mandatory rotation of audit firms has been a subject of debate on both sides of the Atlantic.

Last year, the European Union proposed requiring auditors to rotate every six years (or every nine years if the company has two auditors).

In February, the lower house of the Dutch parliament voted to require automatic rotation every eight years. The U.S. Public Company Accounting Oversight Board (PCAOB) held hearings in March on the same subject.

Read the rest at economia.icaew.com

Search for auditors; don’t rotate [Pensions & Investments]

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In March, the Public Company Accounting Oversight Board held hearings about whether to require public companies to change — or “rotate” — their external auditor periodically. Meanwhile, the European Union is proposing to require mandatory rotation every six or 12 years, and the lower house of the Dutch Parliament recently voted to require auditor rotation every eight years.

Read the rest at pionline.com

Public-pension pitfalls: What municipal budget troubles mean for bond investors [Washington Post]

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Government workers’ pensions may sound like an obscure topic, but it’s front and center in some of the most rancorous of today’s political discussions. Retirement benefits for public workers are at the heart of the conflict between state and local governments and the unions representing their workers — and how that conflict gets resolved will affect investors in the municipal bonds issued by those states and cities. Let’s take a look at the looming public pension crisis, its effect on municipal finance and how accounting reform might help.

Read the rest in the Washington Post