FASB Adopts New Pension Standard
Oct. 3, 2006 (SmartPros) The Financial Accounting Standards Board issued a new standard that will require employers to report their projected benefit obligations for pensions and other retiree benefits on corporate balance sheets.
Under past accounting standards, the funded status of an employer's postretirement benefit plan (i.e., the difference between the plan assets and obligations) was not always completely reported in the balance sheet, often hidden in financial statement footnotes. Employers reported an asset or liability that almost always differed from the plan's funded status because previous accounting standards allowed employers to delay recognition of certain changes in plan assets and obligations that affected the costs of providing such benefits. Past standards only required an employer to disclose the complete funded status of its plans in the notes to the financial statements.
Specifically, the new standard, Statement No. 158 requires an employer to:
The standard applies to plan sponsors that are public and private companies and nongovernmental not-for-profit organizations. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after Dec. 15, 2006, for entities with publicly traded equity securities, and at the end of the fiscal year ending after June 15, 2007, for all other entities. The requirement to measure plan assets and benefit obligations as of the date of the employer's fiscal year-end statement of financial position is effective for fiscal years ending after Dec. 15, 2008.
The new standard "represents a significant improvement in financial reporting as it provides employees, retirees, investors and other financial statement users with access to more complete information," said FASB member George Batavick. "This information will help users make more informed assessments about a company's financial position and its ability to carry out the benefit promises made through these plans."
The issuance of Statement No. 158 completes the first phase of the board's comprehensive project to improve the accounting and reporting for defined benefit pension and other postretirement plans. A second, broader phase of this project will comprehensively address remaining issues. The board expects to collaborate with the International Accounting Standards Board on that phase.
For more on this story: New Pension Accounting Rules Drops Big Liability on Balance Sheet2006 SmartPros Ltd. All rights reserved.