Today, pension reporting on corporate financial statements is practically nonexistent. Accounting rules require only a footnote which is only a discussion of the pension cost. It is not arithmetic that becomes part of the calculation of corporate income. Not surprisingly, however, many companies were quick to report pension investment income on their books in the glory years of the 90's when it suited their purposes. According to a report of Credit Suisse First Boston, 12 percent of the earnings growth registered by the S&P 500 companies in 2000 came from pension income. We should all be as concerned as Warren Buffet when we see our investments impacted by this black box that few understand and whose costs nobody can predict with any certainty.
Books like "The Great 401(k) Hoax" rant on about how American employees have been left to their own devices where these wonderful defined benefit plans once offered a guaranteed retirement benefit. The facts are that portable 401(k) plans generate five times more money at retirement than the traditional succession of retirement plans offered by the collection of employers that most Americans work for over the years. The people writing those books and articles are just pandering to the money management industry that preferred to operate inside the black box rather than out there in the mutual fund world of 401(k)'s where participants can see every dime of assets and earnings. They also have money with 100% certainty without being buffeted by the whims of non-vested forfeitures and corporate downsizing.
The bright spot of "defined benefit" plans is the opportunity they represent for owners and management of small, successful companies and professional practices. These aggressive plans, often coupled with 401(k) plans, can offer opportunities for company owners to contribute huge tax-deferred annual sums into a retirement account. Someone with only ten years left until retirement might be able to contribute as much as $130,000 per year if they wanted to fund a retirement benefit of $160,000 per year starting at age 62. This is a grossly simplified example, but it illustrates the extent to which pension laws designed mainly for large companies can be applied to small companies in a way that creates dramatic tax sheltering. For some, it's an opportunity to catch up on some long-overdue retirement plan contributions. This is the silver lining in the cloud.
I've never suffered at the short end of a defined benefit plan, but I have had my disappointments with Hollywood. Years ago, as a real-life Balzo Snell, I helped to produce the movie "Sheena" which Columbia studios spent $30 million to make. They sent a trained hippo to Africa among other extravagances. The film debuted the same week as "Ghostbuster" and closed a week later. Pauline Kael called it the best "animal acting" she had ever seen. The film has yet to make a profit, but I still have all my arms and legs so I guess I can consider myself fortunate.
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