FASB Puts Pension Disclosure On The Agenda

FASB anticipates that once the dust has settled, information will be provided that is useful in evaluating defined benefit pension plan assets, obligations, and pension cost, including associated risks that may impact future earnings and cash outflows. Specifically, FASB hopes to finalize its position on:

• multi-employer pension plans
• other post-retirement benefit plans
• whether a quantitative materiality threshold should be used as a basis for requiring disclosures about pension and/or other post-retirement benefit plans.

Currently, reporting requirements for pensions do not always provide users with a clear picture of the status and health of a company’s defined benefit pension plans, according to FASB.   Thus, this project aims to select the disclosures that will provide users with the most useful information, without imposing undue costs on auditors and preparers.

Ongoing Discussions

The decision is the latest in a series of deliberations designed to tighten current pension accounting standards by assuring greater transparency (See  FASB Closing In On Pension Reporting Rules ).   In June, FASB tentatively ruled that public and private companies alike will have to tell investors and analysts whether they expect to change the amount they will contribute to a plan in a given year (See  FASB Tightens Pension Reporting Noose ).  Also under the proposed changes, employers would also have to reveal details about their investment returns, and information about where their pension costs are concentrated throughout the company .

During the past year pension rules have attracted attention with a maelstrom of pension underfunding problems (See America’s Pension Crisis ).   The current rule governing pension accounting standards, FAS No 87, has come under fire for its language regarding “smoothing.” (See Smooth Move ).  Smoothing allows companies to take certain assets and obligations off balance sheets and amortize them as income or expenses over time.  Additionally, companies may be allowed to report their expected return on assets, instead of actual losses and gains.

Critics of FAS No 87 argue the rule should be amended to require more frequent pension finance reporting from companies.  Currently, companies are only required to report those figures annually (See  Finance Pros Say Pension Rules Need Change ).