Human Capital & Careers

SEC Seen Probing Pension Costs

The commission is reportedly looking into whether companies are creating "cookie-jar" reserves to boost revenue during tough times.
Stephen TaubOctober 25, 2004

The Securities and Exchange Commission is looking into the accounting practices six companies’ use in calculating pension and other post-retirement benefit costs, according to published reports.

Last week, Boeing, Ford, General Motors, Navistar, Northwest Airlines, and Delphi reportedly admitted to receiving requests for information from the regulatory agency. Each of the companies said they are prepared to cooperate fully with the probe.

The SEC is said to be looking into whether companies create so-called “cookie-jar” reserves that they can tap when they need to boost revenue during challenging times.

“I anticipate us working closely with them,” Ford chairman Bill Ford said last week after speaking at an automotive conference, according to the Associated Press. “We’re a very transparent company and will continue to be so. Everything we’ve done is out there for everyone to see, so there’s nothing to hide.”

Boeing reported that the SEC has stated that the inquiry shouldn’t be construed as an indication by the commission that any breach of the laws has occurred. “Boeing believes that its accounting policies and practices are in accordance with the highest standards and are accurate and complete,” it said in a statement. “However, due to the early stage of this matter, the company is unable to predict what conclusions, if any, the SEC will reach.”

Northwest Airlines confirmed that it received an informal request from the SEC for the information. “We believe our accounting practices are sound and we are fully cooperating with this request,” said Bernie Han, Northwest’s CFO, during a quarterly conference call Wednesday with analysts and reporters, according to AP.

Meanwhile, activist groups are calling on regulators to look into the way companies report pension information in their filings.

For example, the United Steelworkers of America fired off a press release last week requesting that the SEC investigate whether RTI International Metals violated federal securities law by failing to notify shareholders how much RTI’s recent modification of its supplemental executive retirement plan will cost the company.

The Wall Street Journal reported that the Lucent Retirees Organization asked the SEC to examine Lucent Technologies Inc.’s pension accounting practices. The group pointed out that the pension plan kicked in $1.1 billion to the company’s income in 2004 in a year when the company reported $1.2 billion in operating profit, according to the paper.

“Over the past five years, Lucent has consistently generated pension income that has reduced reported losses,” said Michael Calabrese, director of non-partisan think-tank New America Foundation’s Retirement Security Program, which advises retiree groups, according to the report.

Mary Lou Ambrus, a spokeswoman for Lucent, told the paper: “Our pension plans are accounted for and managed in strict accordance with all legal and accounting requirements.”

She added that Lucent once again announced plans to cut its expected rate of return and discount rate for 2005, which it expects will reduce pension income by about $200 million.