AT&T takes $2.7 billion charge in Q4 from pension accounting change

As AT&T (NYSE: T) gets ready to release Q4 2010 earnings in about two weeks, the service provider will have to take out about $2.7 billion, a factor it attributes to how it handles accounting for its pension fund.

By using a practice called mark-to-market accounting, the service provider will be able to recognize the gains and losses in the year in which they are incurred versus being amortized over a period of several years. These gains and losses will be recorded on its Q4 statement each year.

The charge, which it says is driven by a reduction in the benefit plan discount rate from 6.5 percent to 5.8 percent, is partially offset by higher-than-expected returns on benefit plan assets and favorable health care cost trends in 2010.

"AT&T expects the change to a market-based approach will result in simpler, more transparent financial results by linking results directly to current market returns, interest rates and health care costs," the service provider said in a release announcing the change. "The change will not impact AT&T's cash flow or pension funding requirements."

Rick Lindner, AT&T's CFO said during a conference call yesterday that the change would eliminate the "complex and involved process" of adding up the amount of these benefits for company shareholders, adding that they don't think the move will have a major effect on its long-term earnings.

AT&T's move illustrates an ongoing trend amongst large multinational corporations such as Honeywell (NYSE: HON), GE (NYSE: GE), and IBM (NYSE: IBM), which have also reworked their pension accounting practices in recent years.

For more:
- see the release
- Bloomberg has this article

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