Institutional investors

Capital budgeting October 2009 James Gannon, CFA Manager, Investment Strategy & Consulting Strategic asset allocation decisions in a pension plan can affect the expected long-term rate of return on assets (ELTRA or EROA) assumption the sponsoring corporation uses to calculate pension expense, and that in turn can impact corporate financial statements. To what extent is it reasonable to take this into account in the pension fund asset allocation decision process? This paper outlines how:   A pension plan can be looked at as being a capital project, Decisions based on short-term accounting effects can act against the corporation's long-term best interests, Stock analysts are trained to adjust pension expense for the artificial impact of ELTRA, and Plan sponsors should consider other factors in the asset allocation decision. Request this research Related research Accounting for pension expense in corporate financial statements: An update Pre-empting FASB: mark-to-market pension cost accounting Corporate bonuses and the error of EROA A note about our research Our proprietary research is made available to our institutional clients, and many of these published papers are available to other institutional investors as well. If you are not a Russell client, but are an institutional investor, we welcome you to request this research piece. We only require your contact information on a short request form. For more information about our research, please contact David or Gerry:     West Coast David Rothenberg Managing Director 866-926-5934 East Coast Gerry Lillis Director 866-459-4128 Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. USI-11765			Request this research Printer friendly version of this page