FASB's proposed pension accounting reform will benefit companies by shedding light on a financial problem that can ruin them, David Tweedie, chairman, International Accounting Standards Board, testified today before a hearing of the Senate Committee on Banking, Housing, and Urban Affairs.
"We're not saying we have this exactly right," Mr. Tweedie said of the proposed rule change to better reflect the economic costs of funding pension benefits. "But I think this reform will save a lot of companies that would have gone into the mountainside. They will realize they weren't flying high enough."
Robert H. Herz, chairman of the Financial Accounting Standards Board, testified the rule change may cause some companies to invest more in bonds and less in equities. "As a layman (in investing) matching may better secure benefits," he said.
When Sen. Paul S. Sarbanes, D-Md., asked if FASB pension accounting changes has caused companies to terminate or threaten termination of their pension plans, Mr. Herz said: "There has been a pronounced flight over the last 20 years from defined benefit plans ... long before we talked about doing anything with accounting."
Both Messrs. Tweedie and Herz expect international accounting rules on pensions to converge and have the same rules applied globally in eight to 10 years.
"In five years' time, the differences will be pretty small," Mr. Tweedie said.