US - Verizon Communications, the second-largest US phone company, will take a charge of $600m in its 2010 results as it changes the way it accounts for fluctuations in its pension funds.
The company is cutting the expected return on the funds, increasing its liability by $2.9bn for last year, according to a statement from the New York-based Verizon today. The changes will make predictions for the funds' growth correspond more closely with recent market performance.
The change follows a similar move by telecommunications giant AT&T earlier this week (Global Pensions:14 January 2011)
Rather than spreading out the gains and losses to funds over a period of several years, the changes will be recognised by Verizon in the year they happen, the company said. The previous way of accounting diluted the effect of a particularly good or bad year. The modification won't affect cash flow.
Verizon is lowering the discount rate, or the projected interest rate used to value the expected return on a pension fund's assets, to 5.75% from 6.25%. The company said the move will make its expected liability for pensions easier to understand.
Verizon had almost as many retirees participating in its benefit plans as employees at the end of 2009, counting 213,000 former employees drawing the benefits, according to a regulatory filing. Verizon will report fourth-quarter earnings on January 25.
A similar move last week prompted Dallas-based AT&T to cut $17bn from retained earnings and $2.7bn from fourth- quarter income. The expense is a non-cash charge. AT&T also said the change would make it easier for analysts and investors to understand market influences on the plans.
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