The new regulation requires companies to show the true value of their pension plan assets and liabilities instead of spreading the cost of funding them over a number of years, as under the previous standard, SSAP 24.
Under FRS17, assets must be accounted for at market price, and liabilities discounted by the yield on corporate bonds. A shortfall or surplus must be reflected on the company’s balance sheet.
Speaking at the National Association of Pension Funds (NAPF) annual conference, Mary Keegan, chair of the Accounting Standards Board conceded that the numbers produced under FRS17 were “not very palatable.”
However, she blamed the equity market slump for the weak results and questioned whether the deficits, reflected as a result of the new rule, were the cause of the closure of DB plans in the UK.
The new standard is being blamed by many for the closure of many pension plans. Opponents of FRS17 argue that it increases volatility on balance sheets, and could affect a company’s ability to pay dividends.
Recently British Airways said it would close its £10 billion defined benefit plan, which has a deficit of £394 under FRS17.