Verizon Follows AT&T Footsetps in Pension Accounting Change

(January 21, 2011) — As part of its plan to simplify how it accounts for pension and other post-retirement benefits, Verizon Communications has said it will book pretax charges of $600 million in its 2010 results.

According to the Wall Street Journal, the firm has indicated plans to switch to a style of accounting that would record gains and losses each year as opposed to recording them over a number of years, consequently moving $20.2 billion worth of future losses behind them.

The move follows the decision by AT&T, the largest US phone company, which said last week that it would slash $17 billion from retained earnings, changing the way it handles accounting for its pension fund. As part of a move to tie the plan’s expected return to market fluctuations, the phone company is slashing the benefit plan’s discount rate to 5.8% from 6.5%. As a result, the company will take a $0.28 per share, or $2.7 billion, pretax charge in its fourth quarter 2010 financial report, for which AT&T is due to report results on January 27.

The decision by Verizon to follow AT&T’s lead shows that other companies aiming to mitigate the impacts of the 2008 financial crisis on their pension plans may mirror this pension accounting change. The decision also follows a move by Honeywell International Inc, a maker of cockpit electronics, to implement a similar change to its accounting, which it announced in November.

Fran Shammo, Verizon’s chief financial officer, said the change will make its financial reporting “easier to understand and more transparent,” the Wall Street Journal reported. “We’ve been considering this accounting change for some time.”

According to Reuters, Verizon said the estimated return on its pension assets was about 14% in 2010 compared with an assumption of 8.5%, resulting in an actuarial gain of about $1 billion. The change won’t impact cash flow or pension funding, and it won’t affect liabilities for pensions or other post-employment benefits. Verizon will announce its 2010 financial results on January 25. Verizon is expected to post revenue of $26.47 billion for the fourth quarter and $105.9 billion for the full year 2010.