UPS to Change Pension Accounting Method

UPS (NYSE:UPS) says it is switching its accounting system for pension plans to a mark-to-market process that will allow for clearer, simpler financial reporting, according to a Business Wire report.

The new method, picked up in the fourth quarter of 2011, affects expense recognition for company-sponsored pension and post-retirement benefit plans. The change is in accounting only and has no impact on benefits for plan participants, funding for pension plans, or UPS cash flow.

The process records actuarial gains and losses on the income statement in the year incurred instead of amortizing them over time. In the fourth quarter of each year, a mark-to-market adjustment will be made to reflect actuarial gains or losses that fall outside a specific area of recognition — 10 percent of the greater of benefit obligations or plan assets.

UPS will continue to include the projected impact of record service costs, interest costs and expected return on assets at the business segment level in its annual guidance. The company plans to take a pre-tax $827 million charge for the 2011 mark-to-market adjustment that will trim profits by $0.51 in the fourth quarter and $0.41 for full-year 2011. The change is expected to add $0.03 back for the quarter and $0.12 for the year.

Kurt Kuehn, chief financial officer at UPS, said the new policy allows for more transparency in the company’s underlying operating results.