Efforts to change pension plan reporting rules could transform allocation of U.S. pension assets and reshape the market for bonds and other debt securities.[@@]
Pension fund experts made those predictions here Thursday at a seminar sponsored by a unit of Merrill Lynch & Company Inc., New York.
Although defined benefit pension plans cover only 20% of the U.S. work force and suffer from at least $500 billion in underfunding, they still hold about $12 trillion in assets, according to Robert Doll, chief investment officer at Merrill Lynch Investment Managers, New York.
The Financial Accounting Standards Board, Norwalk, Conn., has been considering a proposal to eliminate investment performance rules that permit “smoothing” of what appear to be temporary fluctuations in the value of the stocks in pension plan portfolios.
FASB has postponed the possibility that it might adopt a ban on volatility smoothing for at least a year.
But the Committee on the Investment of Employee Benefit Assets, Bethesda, Md., has predicted that adoption of the anti-smoothing proposal could cut pension plan stock allocations about 13%, according to Chet Ragavan, head of global fixed-income research at Merrill Lynch Investment Managers.