Corporate execs blastFASB proposal

NORWALK, Conn. — Corporate financial executives object to the FASB's proposal to require more detailed disclosure of the investment allocation and valuation of pension assets, comment letters show.

“FASB (should) not put in place a regime that will have little or no relevance in the future,” wrote William F. Quinn, chairman of the Committee on Investment of Employee Benefit Assets, in a comment letter on the proposal to the Financial Accounting Standards Board, Norwalk, Conn.

The proposal “will not lead to a meaningful increase in transparency and may reduce comparability,” said Mr. Quinn, who is also chairman of American Beacon Advisors Inc., which oversees the $9.1 billion pension fund of American Airlines Inc., both units of AMR Corp., Fort Worth, Texas. (American Beacon's sale to Lighthouse Holdings is expected to close in summer.)

Mr. Quinn was referring to one aspect, on disclosure of debt details, although his letter was generally critical of the proposal.

The proposal would amend Statement 132R — Employers' Disclosures about Pensions and Other Postretirement Benefits. If adopted, it would take effect for corporate fiscal years ending after Dec. 15, 2008, or in time for the 10-K statements most corporations will issue next spring.

Executives of Eli Lilly and Co. and Abbott Laboratories, among other corporations, also criticized the proposal, calling it excessive and costly.

“We have nearly 20 benefit plans worldwide that have literally thousands of investments in various private and public companies through over 100 investment managers,” wrote Arnold C. Hanish, executive director-finance and chief accounting officer at Eli Lilly, expressing concern about the complexity of accumulating the asset data in a tight reporting timeframe.

The disclosure detailing “the benefit plan assets is not decision-useful data and ... the overall potential benefits to the readers do not outweigh the potential costs and time of providing this disclosure,” he wrote.

Eli Lilly, based in Indianapolis, has $7.3 billion in worldwide defined benefit assets, according to its 10-K report.

Greg W. Linder, vice president and controller of Abbott Park, Ill.-based Abbott, which has $6 billion in pension assets worldwide, wrote: “Accumulating, summarizing and auditing this information will take more time than for any other current disclosure requirement” and will be difficult to do.

The comment period closed May 2. The FASB has posted on its website 40 comment letters so far. (To view the letters go to the FASB website: httpp://www.fasb.org.)

The FASB “staff will analyze the comment letters and make recommendations based on the contents of them to the board,” said Christine Klimek, communications manager. “The board will go into redeliberations this summer on the recommendations.”

Reconsideration could begin in June, she said. The board could keep the proposal as is, modify it or scrap it altogether, she added.

In a joint letter, New York-based Mercer Inc.'s James F. Verlautz, principal. and Ethan E. Kra, chief retirement actuary, called the proposed disclosure standards costly to employers. They suggested a one-year extension on implementation.

John L. Merino, corporate vice president and principal accounting officer at FedEx Corp., Memphis, said the proposal is “impractical” for companies to implement within the required time frame.

Other companies whose executives objected to the proposal and called for extensive revisions include E.I. du Pont de Nemours & Co., United States Steel Corp., Johnson & Johnson , Chevron Corp., Walt Disney Co., Texas Instruments Corp. and Nortel Networks Inc.

CIEBA's Mr. Quinn in his letter criticized one facet of the proposal calling for the detailed breakdown of debt.

“It appears that this proposed requirement may have been prompted by recent disruptions in the U.S. credit markets, resulting from the subprime mortgage meltdown. While no specific data is available, it appears that private sector pension plans, as long-term investors, have little direct exposure to subprime mortgage-backed securities, such as structured investment vehicles, collateralized debt obligations, or auction rate securities. We strongly urge that FASB not put in place a regime that will have little or no relevance in the future,” Mr. Quinn wrote in the letter.

CIEBA suggested the FASB adopt a 10% threshold for asset categories in allocations. Mr. Quinn noted in his five-page letter the lack of thresholds “will cause plan sponsors to report fairly extensive information on categories that represent little or no risk to the overall portfolio.” He pointed out, for example, hedge funds constituted only 3.15% of total CIEBA-member defined benefit assets, while private equity and venture capital together made up only 4.66%.

However, the FASB proposal did win some support among analysts.

“The importance of improved disclosures about pension assets has been very evident in our recent interaction with both investors and companies” that have asked “our views on how pension funding will be impacted by the current market turmoil and which companies' pensions are exposed to subprime related risks,” wrote Mark C LaMonte, senior vice president and head of the enhanced analytics group, and Wesley Smyth, vice president and senior accounting analyst, both of Moody's Investors Service Inc., New York.

Two Credit Suisse Group executives — Rudolf Bless, managing director and chief accounting officer, and Patrick Joerin, vice president-compensation and benefits accounting — sought a more detailed disclosure than proposed by the FASB.

“While we support the proposed” rule, “limiting disclosures only to plan assets does not provide the reader of the financial statements with a complete understanding of the risks of the plan,” wrote Messrs. Bless and Joerin.

“One of the larger plan risks that must be managed is longevity risk associated with the plan liabilities. We do not believe the proposal will provide meaningful information unless it is provided in the overall context of how we attempt to manage the risks of the plan including investment diversification. We believe that a description of the primary risk associated with the plan, management's approach to mitigating that risk, and a description of the investment strategy including investment diversification would provide more useful information to readers.”

Contact Barry B. Burr at [email protected]