The Financial Accounting Standards Board, as expected, issued a standard on Sept. 29 that could result in an estimated $140 billion in unfunded pension liabilities and $326 billion in unfunded retiree medical and other postretirement liabilities moving onto the corporate balance sheets of S&P 500 companies, said Howard Silverblatt, Standard & Poor's senior index analyst.
The new rule could result in a 6% to 7% average reduction in shareholder equities at the S&P 500 companies that offer these plans, Mr. Silverblatt said.
The new pension accounting standard requires liabilities of underfunded defined benefit and other postretirement plans — as well as assets of overfunded plans — to be moved to the balance sheet from financial statement notes. The rule takes effect Dec. 15.
Bob Collie, director-strategic advice, Russell Investment Group, said the new FASB standard will have little impact for most companies. But for a small number, "it will be radical" because they "cannot afford to have the balance-sheet uncertainty" of adding the liabilities.
Some affected pension plans "will be forced to make very big changes in how they invest. It will be liability-driven investment. Maybe it will be a big shift to fixed income (to an allocation) of 50%, 60% or more. Maybe it will be swaps."