FASB Rules Pension/Benefit Changes go in OCI

December 15, 2005 (PLANSPONSOR.com) - The nation's accounting rulemakers have given tentative approval to a plan requiring many US public companies cutting back pensions, retiree health care or other benefits to reflect those moves in their other comprehensive income bookkeeping category.

The Financial Accounting Standards Board (FASB) decided preliminarily on Wednesday that the benefits reduction would be accounted for as an other comprehensive income (OCI) debt. Such previously unrecognized service costs or credits stem from plan amendments that reduce benefits to employees or retirees, according to  an FASB staff summary .

OCI reflects non-owner changes to shareholder’s equity that are not figured into net income and generally do not get the prominence afforded changes to net profit or loss.

The significant implication of the FASB move is that amounts that are now virtually invisible in current financial statements today have to appear in the front of the financial statements as a part of OCI.

On the actuarial gains and losses topic, such changes recognized in OCI would be recycled out of that category into earnings based on the amortization and recognition requirements in current rules on employers’ accounting for pensions (FASB Statement No. 87) and employers’ accounting for postretirement benefits other than pensions (FASB Statement No. 106).

At its meeting this week, a divided FASB rejected recommendations on unrecognized prior service costs or credits by its staff accountants working on the pensions and OPEBs project (See   FASB Pushes On With Pension Accounting Standards Rewrite ). FASB’s staff had advised more modest changes, in keeping with current standards and a relatively brief timetable for the first stage of the FASB project.

The board hopes to issue a formal proposal based on work in the first phase of the pension and benefit project in March 2006.

In another decision on previously unrecognized items related to pensions and OPEBs, FASB considered net transition assets or obligations stemming from the initial adoption of Statements 87 and 106 that are not figured into earnings.

The board accepted all the staff’s recommendations except for those on unrecognized prior service costs or credits.