Aggressive pension plan accounting during the bull market may significantly harm many companies' future earnings.
The problem is that generally accepted accounting principles (GAAP) allow businesses to use expected returns for their pension plans when preparing financial statements. Most companies have used 9% or 10% per year; figures Warren Buffett and many others warned were too aggressive.
In November 2001, Buffett wrote the following in a Fortune magazine article: "I'm a sporting type, and I would love to make a large bet with the chief financial officer of [ExxonMobil
Thus far, they haven't, of course, as the bear market has eroded the value of virtually every traditional pension fund. And companies are now paying the price: GM, for example, has been using a 10% "asset earnings rate assumption," but is now lowering that to 9%. A spokesman told The Wall Street Journal that the move will cost the company about $700 million in increased expenses.