MS: Investors Need To Be Aware Of Dangerous Pension Accounting

Underfunded pension liabilities are one of the biggest risks facing corporate America today, and understanding these liabilities and how they may impact a company’s valuation is essential for investors if they want to avoid a sudden shock down the road.

Pension accounting: Tricky business

Morgan Stanley put out a new research note on the topic of how investors should account for the pension cost in today’s world this week. The bank points out that US GAAP pension accounting permits recognition of generous investment return assumptions that may result in pension income on an underfunded pension plan. Clearly, this can become a problem as when applying multiples on companies with significant pension exposure; investors may be misled by one-off pension benefits, which should...