On March 31, the Financial Accounting Standards Board issued an anticipated exposure draft that proposed significant changes in accounting for defined-benefit pension and health plans. As we explained a couple of columns back, it will recognize net plan assets and/or liabilities, accompanied by accumulated comprehensive income for deferred gains and losses that are currently off-balance sheet.Because of the large amounts and the generally bad news that this new accounting will declare more openly, FASB will be inundated with many negative comments from defenders of the status quo of bad accounting.

How do we know? Chalk it up to our decades of FASB-watching experience.

We wrote this column to give the board a hand by anticipating 10 likely absurd comments, along with our candid rebuttals. How will this help? For one, it's possible our critiques may stop some pointless letters from being sent. For another, FASB's folks don't get to voice the sort of things that we do, so maybe they'll take vicarious pleasure in our comebacks.

So here goes.

1. There are no real liabilities to be recognized. If there are no liabilities, then why are you paying all those benefits? What about the binding contracts that commit you to paying them? If those obligations aren't liabilities, then what on earth are they?

Oh, you say that you can unilaterally back out of them at any time? Right. We'd like to know what attorneys are giving you that advice, so we never seek their counsel. You're living in denial if you think you can just cut off benefits. Because of the public relations nightmare, it can't and won't happen.

2. No one knows for sure how big the liabilities are, and the balance sheet will lose reliability by introducing imprecise numbers based on prognostications. For one thing, the most imprecise number that you can report is zero. Yet that number is used when liabilities aren't recognized. As to the general inappropriateness of predictions, perhaps you can see why we think the same problem exists for all allocations, especially depreciation. The big difference, of course, is that actuaries re-estimate the pension and other benefit liabilities every year using the latest evidence. When was the last time you recalibrated your depreciation prognostications?

This comment is even more inane when it comes from the managers who created the obligations. What does it say about their stewardship if they committed to those future benefit payments without knowing what they're worth? Any managers who make this argument should be ridden out of town on a rail.

3. Financial statement users won't know how to interpret balance sheets. This one cracks us up as much as it did 20 years ago. Get a life! Rub shoulders with some real users. Think about it. Do they just ignore off-balance-sheet obligations? Do they think those huge off-balance-sheet debts aren't destroying your creditworthiness (and credibility)?

If you need proof, read the CFA Institute report titled A Comprehensive Business Reporting Model: Financial Reporting for Investors. Page 1 cites pension plans as a prime example of how real values on the balance sheet will improve accounting. Quit harboring the thought that markets are dumber than you. In fact, they're smarter than any of us.

4. If we have to recognize a net pension liability, we'll violate our debt covenants. Well, how about that? Who would benefit most from knowing you're actually over the line on your covenants? It's the same people you promised you would control your appetite for debt! Keep in mind that these proposed accounting practices won't make you violate the covenants. They will only reveal that you have already done so.

5. We won't be able to retroactively increase benefits because the charge will reduce equity right away. That will take away our negotiating flexibility and strikes will be more likely. Unbelievably, management at General Motors added $2.2 billion to its projected benefit obligations as recently as 2003 through plan amendments. We're pretty sure management felt comfortable giving that money away because the reported cost would be spread over the future, instead of hitting the bottom immediately.

Of course, deferred recognition cuts both ways, because the gains from today's hard-fought benefit reductions are also postponed. Isn't it funny how what goes away can also come back to bite you?

Instead of phony deferrals, we favor telling the truth and letting chips fall. We don't see any validity in not telling the truth to gain some ostensible good outcome or avoid an allegedly bad one. It's not just bad ethics, it's bad economics.

6. Comprehensive income will be too volatile. Snicker, giggle. The ruse of putting comprehensive income in equity was invented as a political compromise to reduce income statement volatility, starting with SFAS 12 on marketable securities and SFAS 52 on foreign currency translation.

Back then, preparers complained that revealing volatile results of risky activities would interfere with their ability to engage in them. It was a clear application of, "Let's hide the facts in plain sight and the markets won't see them." The goofy compromise of not reporting income on income statements bought their silence, but created nonsense.

Complaints that the new accounting standard will make other comprehensive income volatile would be nothing short of ludicrous. It's investing in securities and creating open-ended, long-term promises that creates volatility, not accounting for them.

7. We can't possibly get an actuarial estimate done by the end of the fiscal year. A nagging problem addressed in the draft is the puzzling process of adding actuarial estimates from different dates and calling the total meaningful. Technology has obviously improved since the mid-1980s, when the old FASB allowed employers to use numbers from dates other than the balance-sheet date. But you can be sure that someone will raise this complaint, if only to try to slow down the board. Well, it's a nonstarter. Welcome to the 21st century, where those ancient limitations no longer exist.

8. If you issue this standard, we'll terminate our defined-benefit pension and medical benefit plans. Of course, the idea behind reporting useful information is to help rational decisions be reached. If presenting the truth about bad decisions will cause fewer of them to be made, then the information is serving its purpose. If the only thing sustaining your company's plans is inferior financial reporting, then perhaps termination is a good idea.

9. If you issue this standard, we're going to cut off our contributions to the board. Although this threat was seldom delivered to FASB directly, at least some constituents implied that they who held the purse strings should get their way. Sarbanes-Oxley eliminated that possibility, and FASB no longer even accepts contributions. Opponents of progress can forget about this club. That era is over.

10. Who wants to change anyway? This is nothing but an ivory tower solution that doesn't consider the real world. We have recently read lots of things about pension accounting, and we've yet to come across any credible call for keeping the present Rube Goldberg system intact because it's good accounting.

In fact, the literature is full of complaints that GAAP has aggravated the pension crisis by covering up the truth. In fact, the exposure draft proposes only very minor modifications compared to what many are demanding.

Instead of complaining about this pinprick, get ready to put the full assets and liabilities on the balance sheet. Count on seeing the interest incurred on these huge debts being combined with other interest costs, instead of being treated as a labor cost. Count on seeing all gains and losses reported in earnings, not smoothed beyond recognition.

Unless management gets rid of risk, reported income will be just as volatile as the real income. Say "Bye-bye" to 20-year-old nonsensical compromises and, "Hello, truth." If anything was ivory tower and out of touch with reality, it was SFAS 87 and 106.

Our closing thoughts

So, we hope our critiques will cut down on the worthless comment letters to our friends at FASB. We also hope you found catharsis in seeing public responses to fatuous arguments you normally bear in silence. We don't expect to be 100 percent effective, and some may even aim their wrath at us. We'll gladly take it for you. All we ask is that you move quickly into Phase 2 and create real reform.

Paul B.W. Miller is a professor at the University of Colorado at Colorado Springs, and Paul R. Bahnson is a professor at Boise State University. The authors' views are not necessarily those of their institutions. Reach them at paulandpaul@qfr.biz.

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