Summary of Statement No. 88

Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (Issued 12/85)


This Statement establishes standards for an employer's accounting for settlement of defined benefit pension obligations, for curtailment of a defined benefit pension plan, and for termination benefits. This Statement is closely related to FASB Statement No.87, Employers' Accounting for Pensions, and should be considered in that context.

Statement 87 continues the past practice of delaying the recognition in net periodic pension cost of (a) gains and losses from experience different from that assumed, (b) the effects of changes in assumptions, and (c) the cost of retroactive plan amendments. However, this Statement requires immediate recognition of certain previously unrecognized amounts when certain transactions or events occur. It prescribes the method for determining the amount to be recognized in earnings when a pension obligation is settled or a plan is curtailed. Settlement is defined as an irrevocable action that relieves the employer (of the plan) of primary responsibility for an obligation and eliminates significant risks related to the obligation and the assets used to effect the settlement. A curtailment is defined as a significant reduction in, or an elimination of, defined benefit accruals for present employees' future services.

This Statement incorporates, with certain modifications, existing standards on employers' accounting for termination benefits paid to employees, and supersedes FASB Statement No. 74, Accounting for Special Termination Benefits Paid to Employees.

Prior to this Statement, an employer that entered into an asset reversion transaction involving the termination of one plan and establishment of a successor defined benefit plan was precluded from immediately recognizing any resulting gain in earnings. This Statement specifies how that employer should determine the gain to be recognized in earnings at the time of initial application of Statement 87.