The Wall Street Journal had an excellent story yesterday on how major companies are playing around with their pension accounting to make their books look better.

The paper gives it a good headline that in three words sums up what’s going on here:

Rewriting Pension History

Michael Rapoport reports that AT&T, Verizon, and Honeywell are now going to recognize pension losses in the year they occur rather than “smoothing” the losses out over several years, as has been their practice. Why would they do that?

The companies say the changes will make their earnings reporting more transparent, but they also sweep away tens of billions in past pension losses the companies have yet to smooth into—and hurt—their results. By charging them against their earnings from 2008, when the losses were incurred, they are taking lumps for years that many investors may no longer care about.

So, AT&T et al just inflated their current and future earnings by dumping all the pension losses onto their books at once. But they’re not putting them on there for first quarter 2011 results. They’ll go on the books for three years ago, where lots of investors won’t notice them.

This goes to show how manipulated headline numbers like earnings often are. How much profit did you really make this quarter? That depends on what your accountants—and your regulators—will let you do. So, for instance:

AT&T, for example, said its 2008 pension costs would increase by $24.9 billion because of the change, compared to a $3 billion increase for 2010. The company reduced its 2008 earnings by $15.5 billion as a result, from a profit of $12.9 billion to a loss of $2.6 billion.

There’s more upside here to these companies with these accounting changes, the Journal reports:

And the current rock-bottom interest rates make it a good time to make such a change. Any increases in rates could improve pension-plan performance, and clearing away the old losses will heighten the impact that better performance has on the companies’ earnings.

This isn’t necessarily bad for investors. By moving to a system that marks losses (and gains) to market and accounts for them as they occur, future accounting statements should be easier to get your head around.

But it’s awfully convenient that this is playing out like it is. And it’ll only be a good thing if it sticks.

In other words: How likely is it these guys will go back to smoothing shortly after the next collapse in pension returns?

Great work by the Journal here.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.