As I have previously reported, both the government and U.S. corporations face enormous unfunded pension obligations that are already becoming a fiscal nightmare:

     As more and more funds go to retirees, less and less are available for other corporate needs and services.

     In a worst-case situation, companies may have no choice but to default on their pension obligations, or declare bankruptcy, or do both.

     That, of course, is precisely what United Airlines did last year, unilaterally slashing pension checks, some by as much as 70%.

     Many other U.S. companies are facing their own imminent day of reckoning. General Motors, for instance, now has an incredible $65 billion in unfunded retiree pension and medical benefits.

     That's $20 billion more that the total value of all of the cash and investments owned by GM!

     Overall, Standard and Poor's estimates that companies in its 500-stock index, owe an incredible $442 billion more in retiree benefits than they have saved.

     Indeed, seven companies in S&P's 500-stock index have unfunded retirement liabilities in excess of 25% of their total assets, including Maytag (47%), Goodyear Tire & Rubber (38%) and Navistar International (35%).

     Even worse, the gap between corporate assets and unfunded retiree obligations is getting worse for corporate America.

     Accounting expert Jack T. Ciesielski, publisher of the Analyst's Accounting Observer, shows that more and more corporate liabilities are being kept off balance sheets.

     He found that between 2001 and 2004, underfunded corporate obligations (particularly pensions and medical benefits) for 276 S&P 500 companies rose by 30% to $318 billion.

     Until now, companies have been able to cover up these huge obligations by relegating them to footnotes buried deep in their annual reports.

     Now the Securities and Exchange Commission has announced new regulations which will make these corporate obligations much more visible to stockholders and potential investors.

     Under the new SEC regulations, corporate retiree obligations would have to be clearly stated in the body of annual reports, rather than in footnotes. That's Phase I.

     Under Phase II of the new SEC regulations, the value of investments held to pay retiree benefits would have to be valued at their actual market value, rather than at cost or some other bogus figure. Today, many corporations hold equities and bonds that are worth just a fraction of their original cost. So this SEC regulation could cause fundamental measures of a company's financial strength to decline significantly.

     For instance, with higher debt, price/earnings ratios would look much worse than they are under current, fantasyland accounting practices.

     That in turn could lower a company’s financial rating, increase their cost of borrowing, discourage new investors, and cause share prices to fall.

     Understandably, companies with heavy unfunded liabilities are fighting this new SEC proposal tooth-and-nail. That's understandable, but unfortunate.

     Investors deserve to learn the truth – good or bad – about the financial condition of the companies in which they are investing their hard-earned cash.

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