The Value of the S&P 500: What About the Small Print?

Pensions are part of an organization's obligations. As such, for an investor, it's important to understand whether the company he invests in can meet its obligations. The trouble with pension liabilities is that current accounting rules allow companies to hide them in the fine print. Fool.com explains in this article, Stocks with Shocking Debt:

"Unfortunately, filings don't tell the whole story. There's a whole slew of debt that companies don't have to report on the financial statements under generally accepted accounting principles (GAAP). What kinds of debt do companies keep hidden? Pensions and operating leases, to name two. And pensions in particular are quickly becoming a dangerous red flag."

The executive director of the Pension Benefit Guarantee Corportation (PBGC, see earlier post) estimated the total underfunding of pension obligations at a whopping $400 billion at the end of 2002.

If exchange traded companies are forced to change the way they account for these liabilities and other post retirement liabilities, this could have have a drastic impact on their cash positions (What About All that Cash? Via The Big Picture:)

"While it is true that companies have tremendous cash positions currently, if under-funded pension plans and healthcare liabilities are moved from the footnotes of the financial statement to the balance sheet, said cash evaporates. For example, the FASB (Financial Accounting Standards Board) is proposing to move the status of pension and OPEB (post-retirement employee benefit) plans out of the footnotes onto the balance sheet. If done, the notional "hit" to shareholders' equity for the S&P 500 is more than $250 billion."

Tags: pensions, retirement, S&P