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Fasten Your Seat Belt: Bumpy Ride Ahead

Many pension plans could end up in deep trouble with investors when the next phase of accounting rules kicks in

By Beth Karlin | Updated on April 01, 2008

When the Financial Accounting Standards Board (FASB) adopted in 2006 a new accounting standard, FAS 158, that mandated fair-value reporting and considerably more transparency on pension plan liabilities and assets, few companies seemed to take the threat immediately to heart. Even after passage of the Pension Protection Act (PPA) that same year, which imposed strict funding standards on plans, many companies didn’t do much to prepare.

Don’t include VWR International LLC, a $3.5 billion West Chester, Pa.-based distributor of laboratory equipment, in that group. VWR saw the 158 writing on the wall and forged ahead. In the third quarter of 2007, it sold most of its stocks and reallocated the proceeds into longer duration, fixed income investments. The previous mix of 71% equity, 21% fixed and 8% cash mix became a mix of 19% equities, 37% cash and 45% fixed-income, explains Scott Smith, VWR’s treasurer. The key for Smith and VWR was to find suitable hedges against volatility and interest rates. They believe they found that in liability driven investment funds (LDIs) offered by Barclays Global Investors (BGI).

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