A 2002 study of 50 of the largest pension plans by Milliman USA, a Seattle-based actuarial firm, shows the average rate of return on assets for 2001 was 9.3 percent, producing an expected return of $54 billion. The actual returns, however, were a negative $36bn, a loss of more than $90 billion.
Companies like Weyerhaeuser, Delta Airlines, General Motors and Ford have stuck with their high pension fund return assumptions, in spite of the sinking stock market.
The Times notes that if a company does not make its assumed pension fund returns, it would then need to make up the difference and any earnings revisions are likely to harm the company's share prices.
Among those calling for closer scrutiny is Kathleen Connell, California's state controller and a board member of CalPERS and CalSTERS, two of the largest pensions funds. She wants them to assess too-high pension fund return assumptions as part of their investing strategy. Both funds have said they will discuss the issue, the Times says, but the process is likely to be a lengthy one.
The funds are already assessing an overhaul of stock option accounting and whether to ban investing in companies that relocate to offshore tax havens.
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rican pension funds are considering a crackdown on companies that inflate their earnings with overly optimistic assumptions about their own pension fund returns, the Financial Times reports.