FASB Announces Cash Balance Effective Dates

The decision came as part of a March 31 vote by FASB’s board of directors, according to Washington-based legal publisher BNA.   Also provided in the meeting, FASB tentatively settled on a transition approach to phasing in the soon-to-be-proposed cash balance regulations.

During the transition, companies will conduct a measurement of projected pension benefit obligation on adoption of the planned guidance using the current accounting methodology and the one required in the guidance.   “Any difference in the measurement of the projected benefit obligation as a result of applying the interpretation’s guidance would be recognized fully in the income statement as a cumulative-effect-like adjustment,” according to a FASB staff summary.

To date, the proposed rules have not yet been issued.   In earlier guidances, FASB projected the proposed cash balance regulations would be issued in draft form in the second quarter of 2004, with a final form expected in November.

Previous Decisions

In March, the Norwalk, Connecticut-based FASB handed down a partial definition of what constitutes a cash balance plan in a recent project update of its broader review of Financial Accounting Standard Number 87 (FAS 87).  Per the definition, the nation’s accounting rulemakers have determined that fully vested cash balance participants are entitled to their notional account balances – those balances that are not actually realized – as either a lump sum or an actuarially equivalent annuity either immediately or at a future date, FASB said in its “Interpretation of FASB Statement No. 87” (See  FASB Sheds Some Light on FAS 87 ).

>Conspicuously left out of FASB’s earlier elaboration on cash balance plans is how companies should attribute the cost of benefits earned to periods of service for plans that do not define annual retirement benefits in relation to salary and years of service.  This issue has been brought to the forefront in ongoing court battle over how IBM Corp handled its conversion from a traditional to a cash balance plan (See IBM Cash Balance Judge: Plaintiffs Due Retroactive Benefits ). FASB promises future guidance on the subject as it continues its review of FAS 87.

Going forward, FASB has plans to discuss other cash balance related issues including disclosures, transition, and an effective date at future board meetings.  In the meantime, “Interpretation of FASB Statement No. 87” is available at  http://www.fasb.org/project/interpretation_st87.shtml .  It should be noted that FASB’s Interpretation is merely a summary of Board decisions and does not change current accounting regulations.