Pre-Funded and Internally Funded Pension Plans: The Potential for Improving Global Comparability

Abstract

In this special comment, we discuss some of the analytical advantages and disadvantages of incorporating information about pension assets and liabilities for pre-funded and internally funded pension plans into key ratios. Moody's already has well-established methodologies in place for the analysis of both types of pension plans. These methodologies, which consider the debt-like nature of pension obligations regardless of how they are funded, introduce financial statement adjustments that result in broad comparability between companies with either type of pension plan. Moody's also seeks to improve comparability further by considering supplemental ratios that adjust for pension assets and obligations on a gross basis. The supplemental ratios are used as an enhancement to our existing methodologies and provide an alternative perspective in our analysis of pension obligations. They help us to identify outliers not evident under our existing practices and that may require further scrutiny. The purpose of this special comment is to present the supplemental ratios that we use in our analysis and to provide an overview of Moody's existing methodologies for pension plans.