FASB Changes Pension and Other Postretirement Benefits Disclosure Rules

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.