REUTERS - October 14, 2004 

SEC Eyes Possible Abuses in Pensions

 WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission is looking into possible accounting abuses involving companies' assumptions about employee pension funds, the SEC's top enforcement official said on Thursday.

 "We're looking at assumptions made in connection with pension accounting to determine whether those assumptions were reached to drive earnings results," said SEC Enforcement Division Director Stephen Cutler in an interview.

 Hundreds of companies last year updated key assumptions in their accounting for post-retirement benefits, Business Week magazine reported in its Oct. 25 edition.

 The SEC is looking into whether some of these changes were overly aggressive and made with an eye to enhancing companies' profits and balance sheet figures, Business Week said.

 Cutler declined to identify any of the companies targeted.

 Business Week said areas of SEC concern include assumptions about the rates of return that pension funds can earn; the level of eventual obligations pension funds must meet, determined by discount rate assumptions; and the level of health care cost inflation and retirees' medical benefits.

 Small adjustments in assumptions -- such as over-estimating fund returns or under-estimating health care cost inflation -- can burnish pension fund gains, with proceeds above fund costs flowing to the corporate bottom line, Business Week said.