FASB Could Kick Off Pension Rule Review

January 6, 2004 (PLANSPONSOR.com) - The nation's accounting rulemakers could put the always hot-button issue of pension accounting rules back on the table in a big way at their meeting later this month.

>The Financial Accounting Standards Board (FASB) will consider January 14 whether to start a project that could eventually lead to a pension accounting rule overhaul, Dow Jones reported. While the scope of the initiative isn’t yet clear, the new effort could involve coordinating rulemaking efforts with international standard-setters, who are already considering sweeping pension accounting changes (See    FASB Proposals Latest in International Accounting Conformity Effort ).

>FASB pension manager Peter Proestakes told Dow Jones that the group has many options. “The board can choose from a lot of alternatives: do nothing, or have a fundamental reconsideration of all the issues,” Proestakes told Dow Jones.

>Attacks on current US rules built up steam last year after many companies with traditional retirement plans admitted to sizable funding shortfalls because of the bear market and low interest rates. Lenders, regulators and Wall Street analysts called for changes to the way companies account for their plans.

>Smoothing, in which companies amortize gains and losses over the course of several years, has been one of the biggest hot buttons (See    Accounting Rules Smooth Over Pension’s Potholes ). A company whose pension plan actually experienced a big loss in a given year could report a pension gain during that period using the technique (See  Smooth Move ). Another accounting wrinkle that often draws fire is a rule that lets companies report as actual earnings the money that they merely expect to earn on pension assets for a given period.

>FASB issued a rule on December 23 requiring companies to report more details about their plans, including how assets are invested and how pension contributions could affect overall cash flow (See  FASB Mandates More Pension Disclosures ). Companies are facing a tight deadline to comply, with the first new disclosures due in annual reports this year .

IASB, based in London, has been studying whether to change the way employee benefits are recognized in financial statements, but the project has been delayed. The initiative could lead to the elimination of smoothing mechanisms.