Analysis Estimates $255B FASB Rule Impact

April 5, 2006 ( - The recently finalized Financial Accounting Standards Board (FASB) proposal to force companies to put pensions and other post-employment benefits on their balance sheets will cut 7% from total shareholder's equity from the S&P 500.

Credit Suisse Group analysts estimated in a recent analysis of the new rule’s impact that shareholder’s equity would be cut by about $255 billion, BNA reported.

“It’s not the full consolidation of the plans that we would like to see,” said the report by the Credit Suisse research team of David Zion, Bill Carcache, and Amit Varshney. “However, it’s a big improvement over what’s on the balance sheet today.”

FASB hopes to issue a final standard built from the proposal by early fall, ending the first stage of a multi-phased comprehensive revamping of accounting for pensions and other post-employment benefits (See  FASB Issues Proposed Accounting Changes for Pensions and OPEB ). The complete effort could take more than three years, FASB’s chairman predicted in November.

Changes in pension accounting could lead to “changes in behavior by the companies that sponsor defined benefit pension plans,” according to the Credit Suisse report. It cited possible actions such as shifting allocations of assets, closing plans to new employees, freezing plans and “shutting them down,” some possible changes also identified by US labor groups.

As noted by FASB in the March 31 proposal, some of the board’s constituents have said that “required recognition of the funded statuses of an employer’s plans may have undesirable economic consequences.” The constituents suggested that such accounting probably would cause some companies “to reduce, eliminate, or otherwise revise their postretirement benefit plans,” the board said.