Investors Beware: (T), (VZ), (HON) Change Pension Accounting Practices

Verizon (NYSE:VZ), AT&T (NYSE:T) and Honeywell (NYSE:HON) have recently made the decision to change their accounting practices for pension, in an attempt to "sneak a big one past investors," according to Motley Fool.

They said:

"If you aren't interested in the accounting magic these companies are up to, at least realize that they're probably hoping you won't notice that they've pulled the wool over your eyes. Is that the kind of management you want to invest your hard-earned money in?"

Smooth accounting

"A pension is a promise to provide retirement income to employees. By law, companies are required to save as they go, setting aside a certain amount of money for each employee every year. Companies invest those savings -- much like you invest your 401(k) -- hoping good investment returns will reduce the amount of savings required.

"Like most 401(k)s, corporate pension savings took a beating in 2008. For companies, increases and decreases in pension values impact earnings. If the pension plan makes money, it boosts earnings. If the pension loses money, it reduces earnings. Companies have a choice between recording pension gains and losses on an annual basis or, in a process known as "smoothing," spreading gains and losses over several years.

"Many companies choose smoothing, if for no other reason than to reduce the year-to-year swings in earnings. In particular, when markets fall, smoothing helps reduce the immediate earnings hit. But recently, AT&T, Verizon and Honeywell decided to quit smoothing and start recording pension gains and losses on an as-you-go basis -- purportedly to make earnings more transparent."




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