Randomly Noted

So, the good news out of BNY Mellon Asset Management today is that corporate pension plans this past month were more fully funded then the month before. The bad news is that they remain significantly underfunded and what really helped the funding status in the most recent month was a rising stock market and a tool plans use to measure their liabilities.

In September, the funded status of pension plans stood at 75.9%. That means that if the plans had to liquidate today, retirees would receive basically 3/4 of what they were promised. What helped move this number up 4.6 percentage points was a buoyant stock market, that was up around 9.4% in the U.S. and about 9.8% internationally.

Pension funds determine their liabilities by using a discount rate – which is the aa corporate rate. They try to figure out their future obligations and use this discount rate to figure out the present value. The higher the discount rate, the less money a pension fund owes. So, discount rate assumptions by companies make a difference. And they generally happened to increase their assumptions by six basis points to 4.98%.

We’ll need a very significant increase in hte stock markets and much better corporate earnings to get these plans back to much higher funded levels.

Earlier this month, the House Financial Services Committee approved making permanent the exemption for smaller companies for complying with a key aspect of the Sarbanes-Oxley Act.

The provision, commonly called Section 404, requires public companies’ internal controls and financial reporting systems to undergo periodic reviews that are approved by outside auditors.

As argued here previously, this permanent exemption – if it becomes law – is unfair to investors and sets up a two-tier system of accounting standards among public companies.

This is no small deal, as made clear in the text of a Nov. 6 speech by Securities and Exchange Commission Commissioner Luis A. Aguilar. Noting the current plan as currently constituted would exempt companies with a market capitalization under $75 million, Aguilar said the SEC staff estimates that more than 6,000 public companies may fall under that threshhold. That’s a big number.

“Some are describing this repeal of Sarbanes-Oxley as relief for ‘small businesses,’” he said. “I think people are confused when they hear the words ‘small business.’ The companies that would be exempted are not mom and pop neighborhood stores. These are publicly traded companies that offer their shares to all types of investors.”

Aguilar noted a lot of work has been done over the years to make complying with Section 404 more rational and therefore cheaper than some companies experienced at the start. The Sarbanes-Oxley bill was approved early in this decade after big accounting scandals at Enron, WorldCom and other companies.

“It is clear that repealing 404(b) as to the majority of public companies would be a mistake, and inconsistent with the objectives of reform that strengthens investor protecion,” the commissioner said.

In those halcyon days earlier this decade before the credit crunch and deep recession, an easy way to strike fear into the heart of a chief financial officer of a public U.S. company was to utter the phrase ‘Section 404.’

Now, presumably, such CFOs have bigger worries.

Section 404 was the bogeyman for regulatory refuseniks. It was born in the 2002 Sarbanes-Oxley Act, itself a reaction to accounting scandals of the late 1990s.

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The huge British bank Barclays PLC unveiled a novel plan today that in the short-term should allow it to minimize big swings in the value of not-so-stellar securities sitting on its books. It’s a plan that may very well be copied by other European banks.

Barclays is selling $12.3 billion of residential and commercial mortgage-related securities and a small amount of leveraged loans to a fund that was recently set up by two former Barclays employees. The fund will raise $450 million of equity through the sale of limited partnership interests and borrow $12.6 billion from Barlcays. The securities will act as collateral for the loan.

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At first blush, you wouldn’t be foolish to read the earnings press release from Yingli Green Energy and wonder why this tiny Chinese company is playing with derivatives and playing badly with them by losing $29.9 million.

Even an analyst on the company’s conference call today was seeking help in understanding the derivatives-related loss. The answer he got back was “accounting treatment.” Which was true, but it’s a little more complicated than that and seems to do more with the vagaries of accounting rules rather than any silly playing around with derivatives.

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Okay, it was too wonderful for the media pass up, as it so well exemplified the Main Street versus Wall Street war. But it is time for all of us, including the Congress of the United States, to move pastt the AIG bonus imbroglio and get our focus back on the substantive economic and credit issues before us.

Yes, AIG executives who work in the unit that sunk the firm and caused billions of U.S. taxpayers’ dollars to flow into AIG shouldn’t have gotten bonuses, retention or otherwise. Yes, the Treasury was in there early enough to do something about it and did not. That aspect illustrates the oddity of heavy federal government intervention into a private company without taking outright control. In some regards it means no one is really in charge.

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Ahead of today’s hearing on the U.S. accounting issue commonly referred to as “mark to market,” easily the most famous accounting rule ever, Holman W. Jenkins Jr. wrote a column in The Wall Street Journal (March 11) that struck this correspondent as eminently reasonable. I started as a mark to market purist, meaning I did not believe accounting standards that held financial institutions to the high standard of valuing assets at what they would fetch in the market that day was a bad idea.

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