SWM - Mark Moore

the employee’s sole discretion. This makes future estimates even more uncertain becauseemployees’ contribution to their plan may fluctuate severely month-to-month. The best way toanalyze a company’s pension benefits is to examine three things: the discount rate, return onplan assets, and projected increase in salaries and compensation expense. A big enoughdistortion in any of these three can suggest that they are trying to increase earnings.One of the easiest ways for a company to increase earnings is to adjust their estimatedpension expense. An unusually high discount rate could suggest that the company may betrying to lower their liabilities expense. Schweitzer Mauduit’s discount rate fluctuates around6%. By looking at the table below we can see that this is pretty much the average in thisindustry.Discount Rates for Last Five years 2004 2005 2006 2007 20086.00% 5.75% 6.00% 6.40% 6.40%6.00% 5.75% 5.75% 5.50% 5.75%6.00% 5.75% 6.00% 5.90% 5.90%The second thing we want to consider is where they are investing their money to pay forthese future benefits. In the long run, a pension plan that invests a large portion of its assetsin equities is more than likely going to earn a higher profit than if they were to invest in fixeddebt securities. As shown in the table below, firms in this industry invest a significant amountin equity securities. They also invest a significant amount in hedge funds and real estate, whichthe firms have labeled alternative investments.68