AN ADMONITION FROM THE SEC

Corporate reticence regarding dependence on pension-related earnings has not gone unnoticed by journalists and investors. Reacting to the amount of sleuthing required to nail down IBM’s pension-related income, shareholder­employees of the company urged management to provide better information on the matter.

The SEC, for its part, came down clearly on the side of more explicit disclosure. In an October 13, 2000, letter to accountants, SEC accounting chief Lynn Turner focused on the impact on pension costs of large swings in the market value of pension assets. He also noted that companies might re­duce their pension costs by converting from traditional defined benefit plans to cash balance plans. Like any other event materially affecting cur­rent or future operations and cash flows, wrote Turner, these pension- related events ought to be addressed in the management discussion and analysis section of the financial statements. The chief accountant added that the SEC would order companies to redo their annual reports if they failed to provide adequate information. For good measure, Turner reminded companies to use the “best estimate” for any assumption underlying their estimates of pension liabilities. This comment was taken to reflect analysts’ concerns that companies were overly optimistic about future rates of return on their pension portfolios.⁴