A lot of talk has been given lately to the Pension Guaranty Benefit Corporation’s potential bankruptcy due to underfunded defined benefit plans in companies that go bankrupt. Many CEO’s of companies not yet bankrupt (some airlines come to mind) have said that they cannot fully fund their pensions now, and that it could take 10 years or more to reach that point. They say it’s just impossible to do so and remain solvent.
I suggest that failing to fully fund a pension, particularly if due to inaccurate assumptions about rate of returns on funds set aside for them, is the same as the behavior of Enron and Worldcom. It amounts to accounting fraud of the highest degree. As such, companies that knowlingly produce financial statements that underrepresent the underfunded liabilities that their pensions represent are guilty of violating Sarbanes-Oxley, and should be prosecuted as such.
I suspect that CEO’s that can’t think of a way to fund those pensions will get a lot more creative about solving the problem when faced with potential prison terms.