At its meeting this week, t he Financial Accounting Standards Board (FASB) gave its tentative approval to extend beyond cash balance plans its accounting standard ( FASB No. 87 ) as it relates to lump-sum distributions. If the FASB ultimately decides to go with the proposal, it would require that that “the minimum pension liability recorded would be no less than the walk-away amount that employees would be entitled to if they separated employment at the measurement date,” according to a staff summary . FASB has been working on updated cash balance plan rules since September 2003 (See FASB Begins Formal Cash Balance Review ).
A four-member FASB majority voted to expand the scope of the project. However, the board rejected two proposals that would have put off making a decision, including one that would have called for readdressing cash balance plans as part of a broader pension accounting project. It also turned away the suggestion to direct FASB staff to proceed with the project and continue to explore alternative plan measurement models beyond the model that was criticized in unsolicited comment letters sent to FASB.
The evolving guidance has been controversial because it is expected to increase pension liabilities for many companies.
In May, FASB decided to expand the scope of the effort to change Statement No. 35 to apply an accounting policy for cash balance plans to the measurement of accumulated plan benefits under Statement No. 35. The policy at issue would have the obligation for cash balance pension plans with a market or market-related, or variable, interest crediting rate be measured by reference to the notional account balance, according to a staff summary.
More information about the FASB project is at http://www.fasb.org/project/interpretation_st87.shtml .