From USA TODAY
DETROIT — The Securities and Exchange Commission, as part of a broad effort to pre-empt another flurry of Enron-style financial trickery, has asked three automotive companies and three other, unnamed companies how they make certain pension fund calculations.
The SEC doesn’t suspect the companies of wrongdoing but wants to see what assumptions they make about rates of return on pension investments.
General Motors and Ford Motor, the two biggest auto companies in the world, and Delphi, the largest auto parts supplier, said the SEC has asked them for documents, e-mail and other information about pension calculations and rate-of-return assumptions.
”We are confident that our financial reporting in this area has been accurate and complete,” said Toni Simonetti, a GM spokeswoman, reflecting the reactions of the other companies. The companies said they are cooperating with the SEC.
They received the requests last week, GM and Ford disclosed Tuesday. Delphi did so Monday. The agency won’t identify the three other companies.
The SEC describes its actions as part of a new system of ”risk-based inquiries,” designed to anticipate problems that could lead to fraud and investor losses before they explode into view. The inquiries come from the SEC’s Office of Risk Assessment.
The system follows the collapse of energy broker Enron in December 2001, which cost shareholders $60 billion. In a similar series of inquiries, the SEC has asked for circulation information from major news publishers, including The New York Times Co., The Washington Post Co., Dow Jones, Knight-Ridder and Gannett, publisher of USA TODAY.
What makes pension accounting easy to manipulate:
Companies must invest now to pay employee retirement benefits later. If a company forecasts an optimistic rate of return on its investments, it doesn’t have to put aside as much money to cover the eventual pension liabilities. Money not funneled into pension investments can be used to make the company’s earnings look better. When it comes time to pay benefits, there might not be enough money in the pension fund.
Rates of return can vary widely year to year, so companies typically pick a long-term target. GM, for instance, assumes 9 percent. It earned 22 percent on its pension investments last year but only 6 percent so far this year. It forecasts 9 percent for the full year, Simonetti said.
Standard & Poor’s, which rates the financial health of companies and the creditworthiness of their bonds, said the SEC request ”does not have any immediate implications for the ratings.” S&P says it will monitor the matter. GM stock closed down 91 cents at $38 Tuesday. Ford was down 46 cents to $12.93. Delphi was up 4 cents to $8.28.
Copyright 2004 USA TODAY, a division of Gannett Co. Inc. All Rights Reserved.
_______________________________________
Click here to view the rest of today’s headlines.
