New Pension Accounting: Volatility City?

To see the effects the change in accounting treatment might have on a single company, consider Dupont's pension expense over the five years (see chart). The chemical company's adjusted expense figure swung from a 2,077 percent deviation between expected and actual results in 2002 to a negative deviation of 374 percent in 2006.

The study's results for percentage change to income from continuing operations was similarly "all over the map," said Mulford. Using the revised accounting treatment, the median company would have reported a 51 percent drop in income from continuing operations in 2002, while income would have risen by 9.8 percent in 2006.

When it comes to the volatility of individual companies, Boeing stands out as being especially affected by fair-value pension accounting (see chart). The aircraft manufacturer would have recorded a 177 percent dip in income in 2002, but a 168 percent rise in 2006. Alcoa would have suffered from a big swing in volatility as well, going from a 306 percent drop in income in 2002 to a 9.8 percent rise in 2006. Caterpillar's fair-value adjustments would have been recognized as a 171 percent decrease in income in 2002 and an 11 percent jump in 2006.

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