In the letter, Mr. Buffett, commonly known as the Oracle of Omaha for his investing acumen, also attacked corporate America’s accounting practices, particularly with pension assumptions. “It will come as no surprise that many companies continue to choose an assumption that allows them to report less-than-solid ‘earnings,’ he wrote. The average return assumption for corporate pension plans is 8%, while the average holdings of cash and bonds, which each return no more than 5%, is 28%. That means all remaining assets must return 9.2% after fees, an unrealistic expectation, he said.
He did not leave out government officials in his pension arguments, writing that politicians have little will to solve pension funding problems while boosting pension benefits.
"Public pension promises are huge and, in many cases, funding is woefully inadequate," he wrote. "Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that problems will only become apparent long after these officials have departed. Promises involving very early retirement – sometimes to those in their low 40s – and generous cost-of-living adjustments are easy for these officials to make."
Mr. Buffett also had a dim view of 2008 for the firm’s insurance business, Berkshire’s “cornerstone,” despite a stellar 2007. Last year was an excellent year for the Omaha, Neb.-based firm’s insurance business and marked the second year in a row free of major insurance catastrophes“The party is over,” he said. Profit margins in the insurance industry as a whole will fall significantly this year. “Prices are down, and exposures inexorably rise,” he wrote.
For the fourth quarter, net income at the conglomerate dropped 18%. Berkshire Hathaway's annual meeting is scheduled for May 3.
