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The Financial Accounting
Standards Board (FASB) released FAS 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. The statement simplifies some
disclosure requirements and eliminates others, including the following:
- combines formats for pension
and other postretirement benefits;
- reduces disclosures for
nonpublic entities;
- eliminates disaggregation of
underfunded plans;
- eliminates requirements to
describe covered employee groups;
- eliminates requirements to
disclose alternative measures of benefit obligation, including the vested
benefit obligation (VBO) and accumulated benefit obligation (ABO); and
- allows combined reporting of
costs for multiemployer plans.
However, the statement requires
more information on changes in the benefit obligation and in plan assets, and it
requires additional disclosures on the impact of a decreased assumed trend rate
for health care costs. The statement does not change the measurement or benefit
obligations or recognition of costs. The proposed statement is effective for
fiscal years beginning after December 15, 1997.
Standardized Disclosures for
Pensions and Other Postretirement Benefits
The new disclosure standard requires sponsors of defined benefit pension or
defined benefit postretirement plans to provide the following:
- A reconciliation of the
beginning and ending balances of the benefit obligations. If applicable,
employers should separately disclose the effects of service cost, interest
cost, contributions by plan participants, actuarial gains and losses,
foreign currency exchange rate changes, benefits paid, plan amendments,
business combinations, divestitures, curtailments, settlements and special
termination benefits.
- A reconciliation of the
beginning and ending balances of the fair value of plan assets. Employers
should include any effects attributable to actual return on plan assets,
foreign currency exchange rate changes, employer and participant
contributions, benefits paid, business combinations, divestitures and
settlements.
The plan's funded status and
unrecognized and recognized amounts in the statement of financial position.
These would include the following:
- unamortized prior service
cost;
- unrecognized net gain or
loss;
- unamortized, unrecognized net
obligation or net assets remaining when Statement 87 or 106 became
effective;
- net pension and other
postretirement benefit prepaid assets or accrued liabilities; and
- any intangible assets or
accumulated other comprehensive income.
- The amount of net periodic
benefit cost recognized in net income, showing separately the service cost
component, the interest cost component, the expected return on plan assets
for the period, the amortization of the unrecognized transition obligation
or transition asset, the amount of recognized gains and losses, the amount
of prior service cost recognized, and the amount of gain or loss recognized
due to settlement or curtailment.
- The amount recognized in
other comprehensive income arising from a change in the additional minimum
liability.
- On a weighted-average basis,
plans should state the following assumptions: assumed discount rate, rate of
compensation increase (for pay-related plans) and expected long-term rate of
return on plan assets.
- The assumed health care cost
trend rate for the year used to estimate the cost of plan benefits, along
with a general description of the direction and pattern of the change in the
assumed trend rates. It should also include the ultimate trend rate and when
it is expected to be achieved.
- The effect of both a
one-percentage-point increase and decrease in the weighted average of the
assumed trend rates on the aggregate of the service and interest cost
components of the net periodic postretirement health care benefit cost and
the accumulated postretirement benefit obligation.
When applicable, statements must
also indicate:
- The amounts and types of
employer (and related parties) securities included in plan assets; the
approximate amount of future annual benefits covered by insurance contracts
issued by the employer or related parties; and any significant transactions
between the employer (or related parties) and the plan during the period.
- Any alternative method used
to amortize prior service amounts or unrecognized actuarial gains and
losses.
- Any substantive commitment,
such as past practice or a history of regular benefit increases, used as the
basis for accounting for the benefit obligation.
- Any cost of special or
contractual termination benefits recognized during the period and a
description of the event.
- An explanation of any
significant change in the benefit obligation or plan assets that is not
apparent in other disclosures.
Employers with Two or More
Plans
Employers with two or more plans may aggregate disclosures for all defined
benefit pension and (separately) for all postretirement plans. Plans whose
assets exceed the accumulated benefit obligation generally may be aggregated
with plans whose accumulated benefit obligations exceed assets.
If combining plans, however,
employers must disclose the aggregate benefit obligations and plan assets for
plans whose benefit obligations exceed plan assets.
Generally, disclosures for
foreign plans may be combined with those for U.S. plans, unless the benefit
obligations of the foreign plans are significant relative to the total benefit
obligation and the plans use significantly different assumptions.
Optional Disclosure for
Certain Nonpublic Entities
Nonpublic entities may follow different, abbreviated requirements. These plans
may disclose:
- The benefit obligation, fair
value of plan assets and funded status.
- Employer and participant
contributions and benefits paid.
- Amounts recognized in the
statement of financial position, including the net pension and other
postretirement benefit prepaid assets or accrued liabilities, and any
intangible asset or accumulated other comprehensive income.
- Amount of net periodic
benefit cost recognized in net income and the amount recognized in other
comprehensive income.
- On a weighted-average basis,
the assumed discount rate, rate of compensation increase (for pay-related
plans) and expected long-term rate of return on plan assets.
- The assumed health care cost
trend rate for the year used to estimate the cost of plan benefits, along
with a general description of the direction and pattern of the change in the
assumed trend rates. It should also include the ultimate trend rate and when
it is expected to be achieved.
- If applicable, the amounts
and types of employer (and related parties) securities included in plan
assets, the approximate amount of future annual benefits covered by
insurance contracts issued by the employer or related parties; and any
significant transactions between the employer (or related parties) and the
plan during the period.
- If applicable, the nature and
effect of significant nonroutine events, such as amendments, combinations,
divestitures, curtailments and settlements.
Defined Contribution Plans
Employers with defined contribution plans must disclose the cost recognized for
defined contribution pension or other postretirement benefit plans separately
from the cost recognized for defined benefit plans. The disclosures must
describe any significant changes affecting comparability, such as a change in
the rate of employer contributions, a business combination or a divestiture.
Multiemployer Plans
Multiemployer plans need to disclose contributions to the plans and may disclose
total contributions without disaggregating the amounts attributable to pensions,
other postretirement benefits and other items. The disclosures must describe any
changes affecting comparability. In some situations, withdrawing from a
multiemployer plan may obligate the employer to pay a portion of its unfunded
benefit obligations. In that case, the provisions of FASB Statement No. 5, Accounting
for Contingencies, shall apply.
March 1998
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