FASB Retools Pension Plan Standards

The Financial Accounting Standards Board has issued a proposed set of standards that aim to shed more light on the financial reports of organizations that participate in multi-employer pension plans and other post-retirement benefit plans.

The exposure draft of FASB’s proposed Accounting Standards Update would require companies to provide more disclosures that the board believes would help investors better assess the potential risks faced by employers who participate in multi-employer plans. A recent study of over 100 multi-employer plans, including the largest plans in the country (as measured by assets), indicated that in 2008 those plans were collectively underfunded by over $160 billion (approximately 44 percent of their collective plan liabilities).

Current U.S. GAAP requires employers to disclose their total contribution to multi-employer plans, but there is no requirement to describe the funding status of these plans. Under the proposed guidance, employers would have to provide more information, including a description of the plans in which the employer is involved, the employer’s contractual commitments to the plans, and the expected impact of participating in the plans on the employer’s future cash flows (including the potential impact of plan withdrawal obligations).

“Investors and other financial statement users have expressed concern that current financial statements do not provide enough information about the commitments and potential risk related to multi-employer pension arrangements,” said FASB member Leslie Seidman, who will be taking over as acting chairman of the board on Oct. 1 when current the chairman, Robert Herz, retires.  “We encourage our constituents to review and provide comment on the board’s suggestions for expanding disclosure in this area, one that has gained greater urgency as a result of the recent financial crisis and underfunding of many such plans.”

If approved, the proposed update would require a public company to provide the enhanced disclosures for fiscal years ending after Dec. 15, 2010, and in subsequent fiscal years.
A nonpublic company would be required to provide the enhanced disclosures for fiscal years beginning on or after Dec. 15, 2010, and in subsequent fiscal years (one year later than a public company).

The comment period for the proposed update extends through Nov. 1, 2010. The exposure draft is available at www.fasb.org.