Timing Is Right for Mark-to-Market, Russell Says

Ford’s switch to mark-to-market pension accounting—and the resulting $1.5 billion profit boost—may set off a wave of corporate followers.

Ford’s move to mark-to-market pension accounting, announced last week, could push other corporate funds to switch, according to Russell Investments’ Chief Research Strategist Bob Collie.

A handful of big names have made the change in the last couple of years—Verizon, AT&T, Honeywell, UPS, and most recently FedEx—and Ford’s decision could “prove to be a harbinger of more to follow.”

One reason may be peer pressure, Collie wrote.

According to Ford’s CEO Bob Shanks, the practice of measuring pension gains and losses in the year incurred, rather than amortizing them over several years, “makes our results more comparable to our major competitors.”

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The Detroit automaker’s direct rival Chrysler has already adopted mark-to-market accounting from following international standards, Collie said.

GM, on the other hand, has yet to permanently switch. But Collie noted it marked gains and losses to market as a one-off in 2009 when it filed for bankruptcy.

“Ford’s action could presumably lead to GM (and others) considering whether they might want to move, too,” he added.

Furthermore, timing may be right for corporate funds to make the switch.

“The impact of changing to mark-to-market varies greatly from year-to-year, depending on whether there are accumulated gains or accumulated losses that are yet to be amortized under the previous approach,” Collie said.

By officially adopting mark-to-market on December 31, 2015, Ford was able to secure additional pre-tax profits of around $1.5 billion for the year, pushing the total amount between $10 billion and $11 billion.

According to Russell’s calculations, other large corporate plans could also earn positive short-term profits if they were to make the change this year.

“In a couple of cases, the impact could well exceed Ford’s $1.5 billion,” Collie concluded.

Related: SEI: Fears Overblown about Mark-to-Market Accounting & Accountable Accounting

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