Project Updates

Phase II: Postretirement Benefit Obligations, Including Pensions

Project Summary

Last Updated: April 29, 2008 (Updated sections are indicated with an asterisk *)

The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.

Objectives

The objective of this project is to comprehensively reconsider employers’ accounting for pensions and other postretirement benefits in FASB Statements No. 87, Employers’ Accounting for Pensions, No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, and No. 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, to improve the quality of the information provided to investors, creditors, employees, retirees, donors, and other users of the financial statements. The project is being conducted in phases with an end goal of convergence. The next phase of the project will focus principally on presentation of postretirement benefit assets, benefit liabilities, the cost of providing postretirement benefits, and disclosure.

*Due Process Documents

In September 2006, the Board issued Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans. In February 2007, the Board issued FASB Staff Position FAS 158-1, Conforming Amendments to the Illustrations in FASB Statements No. 87, No. 88, and No. 106 and to the Related Staff Implementation Guides. FSP 158-1 updates the illustrations in those documents to reflect the provisions of Statement 158. With the issuance of Statement 158 and the FSP, the Board completed phase 1 of this project. The proposed FSP to amend Statement 132(R) was exposed on March 18, 2008, with a 45-day comment period ending May 2, 2008.

FAS 158

FSP FAS 158-1

Proposed FSP FAS 132(R)-a

Decisions Reached at the Last Meeting

At its August 29, 2007 meeting, the Board discussed how to conduct the next phase of the project. (See below.)

*Summary of Decisions Reached to Date

Significant decisions reached by the Board to date are summarized below.

Project Plan and Scope of the Next Phase

To leverage FASB and IASB resources effectively, the Board decided to initially conduct the next phase of the FASB’s project separately from the IASB’s project and assess opportunities for convergence as the work in each of the projects progresses, consistent with an end goal of convergence.

FASB’s Next Phase

The next phase of the FASB project will address the following:

1. Presentation of postretirement benefit assets, benefit liabilities, and the cost of providing postretirement benefits (whether to disaggregate the components of postretirement benefit expense, considering how each component would be reported in comprehensive income). Presentation issues will be considered within the context of the framework under development in the joint financial statement presentation project (which presumes that the concepts of other comprehensive income and recycling have been eliminated), allowing for the possibility of interim improvements before that project is completed.

2. Disclosures relating to multiemployer postretirement benefit plans (risk exposure associated with the plans). Because an employer’s costs associated with multiemployer plans currently are reported on a contribution basis, the obligations are not reported in the financial statements or disclosed in the notes to the financial statements.

3. Enhancing the plan asset disclosures currently required by FASB Statement No. 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, to provide users of financial statements with useful, transparent, and timely information about the asset portfolios of postretirement benefit plans. (See proposed FSP)

IASB’s Phase 1

Phase 1 of the IASB project will address the scope and definition of defined return promises (including cash balance plans), measurement of plans that contain defined return promises, off-balance-sheet reporting, and presentation of the components of net periodic benefit cost in earnings and comprehensive income. Presentation issues will be considered within the context of the IASB’s existing framework in IAS 1, Presentation of Financial Statements. This is an interim solution that is being conducted prior to the completion of the joint financial statement presentation project. For information about the IASB’s project, see IASB postretirement benefit update.

Project Plan

After completion of the steps listed above, the FASB and IASB will address any remaining issues relating to the accounting for postretirement benefits with a final goal of convergence.

Next Steps

The Board will consider whether to address measurement and recognition of multiemployer postretirement benefit plans (in addition to disclosures), and begin to analyze possible enhancements to note disclosures associated with multiemployer plans and for risks associated with plan assets. The staff’s analysis will include user input for these issues. Additionally, the staff will begin to consider how postretirement benefit assets, liabilities, and costs would be reported within the context of the framework under development in the joint financial statement presentation project.

Board Meeting and Public Meeting Dates

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final Statement, Interpretation, or FSP.

The following are links to minutes for each meeting.

Below is a list of the FASB Board/Public meetings. Minutes for meetings generally are posted within two weeks following the meeting.

History and Background

Disclosure—Statement 132(R)

In 2003, the FASB issued Statement 132(R), which addressed concerns about the need for enhanced disclosures for plan assets, cash flows for benefit payments and contributions, and components of net benefit cost reported in interim periods. Statement 132(R) did not, however, address other related concerns, including the following:

• Delayed recognition
  • Expected long-term return on plan assets

  • Actuarial gain and losses amortized subject to 10 percent corridor

  • Calculated value of assets for expected return on assets and 10 percent corridor

  • Prior service costs amortized over active service period

• Combining of service cost, asset returns, and financing costs

• Insufficient information about cash flows

• Measurement of the liability
  • Projected benefit obligation versus accumulated benefit obligation versus termination liability

  • Cash balance plans and plans with lump-sum benefits

  • Discount rate(s) to use

• Assumptions Requirements
  • Discount rate and expected rate of return on assets

• Contributions-based accounting for an employer’s participation in a multiemployer plan

• Insufficient and overly complex disclosures

Recognition and Measurement—FASB Project

In 2005, the SEC staff issued its Report and Recommendations Pursuant to Section 401(c) of the Sarbanes-Oxley Act of 2002 on Arrangements with Off-Balance Sheet Implications, Special Purpose Entities, and Transparency of Filings by Issuers. In that Report, the SEC staff identified defined benefit pension plan accounting as one of the topics that should be added to the Board’s technical agenda and recommended that it be addressed jointly with the IASB. The SEC staff concluded that reconsidering the accounting for defined benefit pension plans is necessary to improve the quality and transparency of financial statements and to eliminate inconsistent accounting treatment for pensions (for example, changes in estimates of benefit obligations are not treated in the same manner as other obligations). The FASB’s Financial Accounting Standards Advisory Council and User Advisory Council also urged the Board to address the accounting for postretirement benefits.

In November 2005, the FASB added a project to its agenda to address the employers’ accounting for pensions and other postretirement benefits. The FASB project is being conducted in phases. Completion of the first phase resulted in the issuance of Statement 158, which requires the full funded status of postretirement benefit plans to be recognized on the statement of position.

Convergence—FASB and IASB efforts

In April 2004, the FASB and the IASB identified postretirement benefits as a topic to be addressed in a future major project and agreed that the two Boards should work on that project collaboratively to develop standards of accounting that are internationally converged. The FASB Board added this topic to its agenda in November 2005 (see above) and in July 2006, the IASB added a similar project to its agenda. Like the FASB project, the IASB project is being conducted in phases.

After careful examination of the issues, as well as consideration of the best use of their respective resources, the FASB and the IASB have developed a work plan consistent with an end goal of convergence. Under the plan, each Board will initially work separately on the different but related aspects of the accounting for pensions and other postretirement benefits included in the scope of the current phase of each of the projects and assess opportunities for convergence as the work in each of the projects progresses. In each of the projects, both the FASB and the IASB are focused on creating high-quality accounting standards that address presentation and disclosure of information about pensions and other postretirement benefits that is useful to users of the financial statements.

Contact Information

Peter C. Proestakes
Project Manager
pcproestakes@fasb.org

Philip R. Hood
Assistant Project Manager
prhood@fasb.org

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