Thoughts from the Frontline

The Meaning of “Excess”

By John Mauldin

May 10, 2002

The Meaning of “Excess”
Cisco Cooks the Books Again
Your Basic $90.2 Billion Lie
8.65% Dividends and Growing
Inflation, What Inflation?
Saving Money on Health Care

Over the past few months, I have commented about how large corporations are using their company pension funds to bolster their corporate earnings. Under accounting rules, if a pension fund has "excess" funding, the excess can go to the bottom line of the corporation. Nothing particularly wrong with that, except the meaning of the word "excess" is as loose as Bill Clinton's definition of "is." Today we will visit an amazing statistic that clearly shows just how deceitful, large and widespread this practice is.

It seems corporations can project what they are going to earn in the future, and if their projections show that in the future they will have excess, then that helps their earnings today. The problem is that corporations are making very aggressive assumptions. Warren Buffet notes that GE assumes they are going to make 9.5% on their pension fund investments. The "profits" from these assumptions allowed them to post $1.7 billion to earnings in…

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