Aggressive pension plan accounting during the bull market may significantly harm many companies' future earnings.

General Motors (NYSE: GM) is a prime example. The world's largest auto maker said today it predicts pension expenses will triple in 2003 to about $3 billion. GM's U.S. retirement plans were underfunded by $9.1 billion at the end of 2001, and that total has now risen to about $19.2 billion.

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(NYSE: XOM), GE(NYSE: GE), General Motors, and IBM(NYSE: IBM)], or with their actuaries or auditors, that over the next 15 years they will not average the rates they've postulated."

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.