Pendulum Swings for Retirement Charges
Rising rates and a banner year for stocks could lift earnings at some large companies that have made an arcane but significant change to the way their pension plans are valued.</br></br>Companies including AT&T Inc. and Verizon Communications Inc. could show stronger results than some expect when they report fourth-quarter earnings in coming weeks. They and about 30 other companies in the past few years switched to "mark-to-market" pension accounting to make it easier for investors to gauge plan performance.</br></br>With the switch, pension gains and losses flow into earnings sooner than under the old rules, which are still in effect and allow companies to smooth out the impact over several years. Companies that switch to valuing assets at up-to-date market prices may incur more volatility in their earnings, but it offers a more current picture of a pension plan's health and its contribution to the bottom line.</br></br>In 2011 and 2012, that change hurt the companies' earnings, largely because interest rates were falling at the time. But for 2013, it may be a big help to them, accounting experts said, a factor of the year's surge in interest rates and strong stock-market performance.</br></br>"It's going to account for a huge rise in operating earnings" at the affected companies, said Dan Mahoney, director of research at accounting-research firm CFRA.