Accounting Observer > Public Blog - Update: FASB's Plans For Benefit Plans

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Update: FASB's Plans For Benefit Plans

Location: Blogs AAO Weblog (Public)
Posted by: Jack Ciesielski	12/19/2005 8:29 AM
This morning's Wall Street Journal "Tracking The Numbers" column teed up some issues related to the FASB's first phase of overhauling the accounting for other postemployment benefits (OPEB) plans - and by default, the accounting for pension plans, too. It seems like a good time to review the project decisions reached by the Board at last week's meeting. So far: Unrecognized gains and losses of all stripes will no longer be netted against the funded status of the plans. That includes gains/losses of an actuarial nature, as well as gains/losss related to market value of assets. Those deferrals will now be shown in a pocket of the stockholders' equity section called "accumulated other comprehensive income." (AOCI for short.) In addition, values of plan amendments, and prior service cost/benefits will also no longer be netted against fund balance: they'll also be recorded in the same stockholders' equity pocket. That simple act of relocating the items is what will bring the full amount of the plans' funded status into view on corporate balance sheets. No measurement changes: just geography changes. Transition obligations/benefits get the axe. When the accounting for benefit plans came into being, companies were allowed "transition adjustments" to be amortized into costs over time. No more: whatever remains of those transition obligations or benefits will be charged off. They don't even get the AOCI treatment. No requirements about separate line items on the balance sheet. It's still early in the process. Maybe the FASB will change their mind and require better disclosure on the face of the balance sheet about the benefit obligations. Why go to the trouble of making sure the full amount of obligation is more sensibly stated if users don't know exactly where it all resides on the balance sheet? Changing the geography of the deferrred items won't affect the composition of benefit costs. Charging off the transition items will have an effect on the benefit costs, but no likely impact: there just aren't many big balances of transition items around. What the relocation of the deferred items into AOCI will do, however, is for the most part put big pressure on stockholders' equity. How much? If you're a subscriber to The Analyst's Accounting Observer, pull out your copy of Volume 14, No. 13, "Ugly OPEBs Of The S&P 500: Searching For Sense In The Figures," and you'll get a good idea of how this change would have played out based on 2004 OPEB numbers. For the pension impacts, grab Volume 14, No. 8, "Pension Puzzlement: Effects On S&P 500 Balance Sheets" and pay attention to the "pension neutral" figures presented throughout the report. They're a fair approximation of what this treatment would have meant at the end of 2004 for the pension plans. (If you're not a subscriber, please do not send requests for copies of the reports. While the AAO Weblog is free, The Analyst's Accounting Observer is not. Hey, it's the start of a new year soon. Why not get your research department to subscribe? Rates are here.)

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