American Administration Services Company

Financial Accounting Standards Board’s (FASB) proposed pension reporting rules

FASB, The Financial Accounting Standards Board’s (our national accounting rules-making body) proposals now require more disclosures on pensions and other post-retirement benefits.  -- Intended to address “perceived deficiencies" in disclosures about defined benefit and other postretirement plans, the FASB proposals would require the disclosure of information for each “major category” of plan assets, at the broadest level, equity securities, debt securities, real estate and all other assets for companies that sponsor a pension plan (See FASB Throws Down Pension Reporting Gauntlet).  

Employer plan sponsors face very slim turnaround time requirements to comply.  FASB set a target compliance target date of December 15, 2003 for the new rules to take effect and reporting based on the new regulations for 2003 annual reports.  Employers would have to obtain the newly required disclosure information regarding multiple plans in several countries very quickly.  

These proposals were developed in response to concerns about financial statements & the need for more information about pension plan assets, obligations, cash flows, and net benefit cost. FASB is requiring disclosure of information for each “major category” of plan assets, at the broadest level, equity securities, debt securities, real estate, and all other assets. 

For each major asset category, the proposal would require:

o        Percentage of the fair value of total plan assets as of the date of each statement of financial position presented

o        Target allocation percentage or range of percentages, presented on a weighted average basis

o        Expected long-term rate of return, presented on a weighted-average basis.

o        Disclosure of the range and weighted average of the contractual maturities/term of all debt securities.

o        Disclosure of the defined benefit pension plan accumulated benefit obligation, a measure of the pension obligation used to determine the amount of the minimum liability, when the accumulated benefit obligation exceeds the fair value of plan assets.

o        Presentation of a schedule of estimated future benefit payments included in the determination of the benefit obligation, as of the date of the latest statement of financial position presented, for each of the five succeeding fiscal years, as well as the total amount thereafter and a separate deduction from the total for the amount representing interest necessary to reduce the estimated future payments to present value.

o        detail of the employer’s contributions expected to be paid to the plan during the next fiscal year (beginning after the date of the latest statement of financial position), with a separate detail of: Contributions required by funding regulations or laws,  -  Additional discretionary contributions,  - The aggregate amount and description of any noncash contributions.

o        Disclosure of other key assumptions: Assumed discount rates, -- Rates of compensation increase (for pay-related plans),  -  Expected long-term rates of return on plan assets, all on a weighted-average basis.

This proposal would retain the more limited disclosures for nonpublic entities required by Statement 132 – and that of the new required disclosures, all would be required of nonpublic entities except for interim-period disclosure of the components of net periodic benefit cost recognized. 

Download the complete 54 page FASB proposal (.pdf file)

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