ALL BUSINESS: Better Pension Disclosure

The 372 companies in the Standard & Poor's 500 stock index that offer defined benefit plans are expected to be 97 percent funded at the end of 2007, unchanged from the previous year and sharply higher than the 81 percent in funding level seen in 2002, according to Credit Suisse accounting analyst David Zion.

In addition, companies don't have to disclose their exposure to certain assets, making it almost impossible for investors to understand a plan's risk. Companies just categorize investments in basic buckets like equity, fixed income, real estate and "other," which often refers to the fast-growing area of alternative investments like hedge or private-equity funds.

"For most companies, every one of those categories means different things," Zion said. "With the recent turbulence in asset values, investors want more detail about the types of assets that companies hold, including assets in the pension plan."

If the FASB gets its way, investors will soon get better insight. The U.S. accounting rule maker on Feb. 14 decided to move forward with a potential rule change that would greatly enhance the pension disclosures.

At minimum, companies would have to disclose the amount of assets allocated to equities, government bonds, corporate bonds, mortgage-backed securities, derivatives and real estate. Additional categories would be provided for concentrations of risk like large investment in one country or type of securities, according to Philip Hood, lead manager for the FASB on this initiative.

Companies would also have to apply new fair-value disclosures to their pension assets, just as they do to their other balance sheet items. That means companies would have to give more information on how they value their plan assets.

That's easy when there is a marketplace for similar assets, which then can be used as the basis for valuation. But when there is no market as we are seeing now for many mortgage-backed and other securities hardest hit by the credit crisis that puts much discretion in management's' hands to make their best guess of what valuations should be.

Accounting experts are cheering the changes. It would go a long way toward "letting investors know what kind of quality a firm's pension assets possess," Jack Ciesielski, who writes the popular financial newsletter The Analyst's Accounting Observer, said on his blog.

The FASB wants this rule in place for companies with fiscal years ending after Dec. 15. It will solicit public comment on the changes starting next month, and then will review the proposal again.

That means investors and workers have another year to fret before they get a better view.