Manage your pension plan like a business subsidiary
Article Abstract:
The Financial Accounting Standards Board's new statement on pensions (FAS 87) requires that companies disclose the financial status of their pension plans in corporate financial statements. This has the effect of publicizing the condition of the plan to everyone, from company employees to stockholders and investors. Pension surpluses or deficits will fluctuate and affect sponsors' income statements and balance sheets. The pension plan has thus assumed increased corporate importance. Pensions will have to be managed through a balance of benefit, funding, and investment projections reflecting realistic corporate goals. Economic risks will have to be delineated. Computer programs are available for this type of asset-liability simulation using FAS 87 parameters. Risk management and asset allocation remain management functions, however.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1988
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Post-retirement medical benefits pose a huge funding problem
Article Abstract:
Employers should develop a planning strategy to handle the large financial impact of the new Financial Accounting Standards Board's (FASB) proposed rules concerning company liability for retiree medical benefits. A first step is to review current and past medical plans and analyze premiums paid for pre- and post-65 coverage. The current actuarial value of post-retirement benefits should then be calculated under different economic conditions. The FASB-type costs should be projected for each economic condition and compared with projected pay-as-you-go costs. The liabilities of a defined benefit might be reduced by the amendment of any of the following provisions: eligibility, cost sharing, coverage, coordination of benefits and alternative delivery systems. Changes should only be made after a review of legal and ethical commitments.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1988
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Economic consequences of pension policy deliberations (SFAS No. 87): an empirical assessment of debt-covenant hypothesis
Article Abstract:
The economic impact of the Financial Accounting Standard Board's pension policy deliberations on firms which were affected by the minimum liability recognition of SFAS No. 87, 'Employers' Accounting for Pensions,' is examined. Public and private lending contracts of a sample of 26 firms which are highly leveraged and with large unfunded pension liabilities are analyzed. Forty six accounting-based debt covenants are identified. For more than 65% of the sample, compliance with SFAS No. 87 will result in technical violations or big reductions in debt covenant slack.
Publication Name: Journal of Business Finance and Accounting
Subject: Business
ISSN: 0306-686X
Year: 1992
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