FASB Accounting Changes

[Jadow]

The FASB (Financial Accounting Standards Board) is going to change the rules for the way companies have to account for their pensions.

Going back into history, company pension obligations have always been a murky, non-account for item. Companies could have massivly underfunded pension obligations, and get away with it, counting on a hot stock market, or the government to bail them out when they couldn't meet their obligation.

Now, FASB is going to require that companies list their whole pension obligation as a liability on their balance sheet. This will greatly increase transparency and bring light of day to this issue.

This could have a couple of major ramifications for companies and workers.

1. It will cause these companies to be more correctly valued in the marketplace, before if they had a multi billion dollar pension debt, they could hide it, now it will be right out in the open.

2. Which I think it the big one, I think it will essentially be the end of the traditional pension. The trend for companies to eliminate pensions and move towards 401k plans already has a ton of momentium and has been going on for 20+ years, and with some recent announcements of the end of pensions, IBM, Verizon, I think these FASB changes are essentially the death knell.

What will the ramifications of this shift to 401k's be? Well, employees will need to become investors more than ever, and in 10 years, we will have a huge investor class in America. The days of the blue collar man working for 40 years, retiring and having a pension to count on are over, they will need to invest and save themself. On one hand this will greatly empower Americans, on the other hand there is an increased chance of people wihtout responsibility to be on the government dole, let's face it companies are going to spend a ton less in retirement.

Before they basically fully funded the retirement of all workers, now about 50% of workers won't participate in the 401k which means the company pays ZERO, and for the 50% that do, the average match is 50% of the first 6%, a hell of a lot less than what they were paying before. This should make American companies much more competitive in the global marketplace but at what cost? It will be years before we know the answer and understand the fallout from this radical change in American society.

 

[Engineer]

Heck, not all companies that move to 401k plans even match them. My company, following Ford a few years ago, dropped the 401k match. We (the employee) are on our own now (not that I have ever thought a pension or SS would be available. I have always wanted MY money (including SS money) to invest/save for myself. No guarantees in life...)

Also, I do feel that billions of dollars will flow back to corporations and will result in a lower average "benefit" to the workers, making them seem somewhat more competitive in wage/benefits area vs the rest of the world. Long term....who knows....

 

[Jadow]

yeah, that really sucks a company that has a 401k without a match is essentially doing NOTHING!

I was plssed about my company's match for 2005. It was 38% of the first 6%. They were always over 50%, even over 60%, now out of nowhere, it was 38% this year. In company stock too. At least it's something.

 

[Engineer]

Originally posted by: Jadow
yeah, that really sucks a company that has a 401k without a match is essentially doing NOTHING!

I was plssed about my company's match for 2005. It was 38% of the first 6%. They were always over 50%, even over 60%, now out of nowhere, it was 38% this year. In company stock too. At least it's something.

No match for 3.5 years now. Big bonuses for those at the top for saving that few million...



Still, higher limits on a 401k than an IRA PLUS you can still do a ROTH. Not so sure that a Roth might be better or not...

 

[DVK916]

The FASB also needs to start requiring that companies use certified actuaries to calculate their pension, rather than just an accountant.

 

[rahvin]

Originally posted by: Engineer
Still, higher limits on a 401k than an IRA PLUS you can still do a ROTH. Not so sure that a Roth might be better or not...

I remember an article, that I can't find right now, that basically said if your company isn't matching you should be investing in a roth IRA rather than a 401k.

 

[Engineer]

Originally posted by: rahvin

Originally posted by: Engineer
Still, higher limits on a 401k than an IRA PLUS you can still do a ROTH. Not so sure that a Roth might be better or not...

I remember an article, that I can't find right now, that basically said if your company isn't matching you should be investing in a roth IRA rather than a 401k.

I'm doing both so doesn't matter much. To others thought, I guess it depends on your tax bracket and possible expected tax bracket at retirement.

 

[rahvin]

The tax rate when you retire is going to be a LOT higher than it is now, Bush and congress are ensuring that. Invest in tax free investments.

 

[Jadow]

If I were a betting man, I would bet they will be higher as well. Not A LOT higher, but higher. That's why I hope my company offers a Roth401k sometime this year, I'd like to roll my regular 401k into a Roth, It'd be a large tax hit, but if I spread it over 4 years, like they allowed when they first offered the RothIRA, then I'd do it.

 

[techs]

Originally posted by: rahvin
The tax rate when you retire is going to be a LOT higher than it is now, Bush and congress are ensuring that. Invest in tax free investments.

Unfortunately most tax free investments are munincipal bonds. When the Fed budget goes down the toilet so will munincipalities which make those investments riskier.

 

[Jhhnn]

Nice. Instead of providing incentive to fully fund pension plans, the govt gives even more reasons to abolish them, take the money and run.

And it makes for easy pickin's for the wolves of Wall St- instead of dealing with professional money managers, pension fund administrators, they get a gaggle of rubes- divide and conquer. It's only natural that when the rules are everyman for himself that those with the strongest positions and greatest assets will prosper at the expense of those less fortunate...

 

[Genx87]

Pension fund like SS are a ponzi sheme that failed.

If a company isnt matching on 401ks dont bother putting money in imo.
I would rather just take the money and plow it into a Roth IRA or one of my own retirement funds.

 

[Jhhnn]

The answer, of course, is defined contribution, independently administered, bonded, insured, and professionally managed pension funds... basically, a group 401K. Strength in numbers, and all that.. Apparently, there aren't any executive bonuses in that, and the profit margin is way too small.

 

[glenn1]

Heck, not all companies that move to 401k plans even match them. My company, following Ford a few years ago, dropped the 401k match. We (the employee) are on our own now (not that I have ever thought a pension or SS would be available. I have always wanted MY money (including SS money) to invest/save for myself. No guarantees in life...)

One of the main reasons for a company match is so the plan doesn't run afoul of "top-heavy" rules, much moreso than just the generosity of management to the rank and file employees.

 

[rahvin]

Originally posted by: Jhhnn
Nice. Instead of providing incentive to fully fund pension plans, the govt gives even more reasons to abolish them, take the money and run.

And it makes for easy pickin's for the wolves of Wall St- instead of dealing with professional money managers, pension fund administrators, they get a gaggle of rubes- divide and conquer. It's only natural that when the rules are everyman for himself that those with the strongest positions and greatest assets will prosper at the expense of those less fortunate...

You may want to pay attention to the fact that this requirement was defined by the FASB. It's an accounting rule and has nothing to do with whatever political dog you want to whip. This rule is to force accountability on the pension plans by exposing them to stock holder review. A review that will punish companies that leave an unfunded liability on the books that will bankrupt a company down the line. Something that happened to more than one major company in this country. It's likely that the coming bankruptcy of GM along with the previous of bethleham triggered this as it wiped out billions of stockholder equity in one stroke.