In a vote at its regular meeting Thursday, the board formally added a project to its agenda to rethink its existing guidance in Statement No. 87, Employers’ Accounting for Pensions, and Statement No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. FASB sets US accounting standards.
“The Board’s objective in undertaking the project is to improve the reporting of pensions and other postretirement benefit plans in the financial statements by making information more useful and transparent for investors, creditors, employees, retirees, and other users,” FASB said in its announcement of its staff recommendation approval (See FASB Set to Consider Sweeping Pension Reporting Changes ).
FASB Chairman Robert Herz declared Thursday that the panel was conscious of the time pressure to put reformed pension accounting into place.
“We have heard many different views from our constituents about how the current accounting model should be reconsidered to improve transparency and usefulness,” Herz said in the statement. “The breadth and complexity of the issues involved and the views on how to address them are deeply held. While the accounting and reporting issues do not appear to lend themselves to a simple fix, the Board believes that immediate improvements are necessary and will look for areas that can be improved quickly.”
The board decided that the first phase of the project will address the fact that, under current accounting standards, important information about the financial status of a company’s plan is reported in the footnotes, but not in the basic financial statements. Accordingly, this phase will seek to improve transparency by requiring that the funded or unfunded status of defined benefit and other postretirement benefit plans, measured as the difference between the fair value of plan assets and the current measure of the benefit obligation incurred for past employee service, be recognized in the balance sheet.
The second broader phase would comprehensively address remaining issues, including:
- How to best recognize and display in earnings and other comprehensive income the various elements that affect the cost of providing postretirement benefits,
- How to best measure the obligation, in particular the obligations under plans with lump-sum settlement options,
- Whether more or different guidance should be provided regarding measurement assumptions, and
- Whether postretirement benefit trusts should be consolidated by the plan sponsor.
Consistent with its effort toward international convergence of accounting standards, the FASB expects to work with the International Accounting Standards Board and other standards setters.