Agency issues rule seeking detail on post-retirement benefits
HARTFORD, Conn. – Companies will be forced to disclose more prominently whether they have set aside enough money for pensions and retirement benefits under an expected change in accounting rules that comes amid estimates that U.S. retirement plans are underfunded by $450 billion.The rule proposed Friday by the Financial Accounting Standards Board would require companies to add an entry on their balance sheets to reflect whether their retirement plans are overfunded or underfunded. Currently, such information is only disclosed in a separate footnote that accompanies financial statements, a practice that can make a company’s debt and future liabilities appear lower than they are.Current standards do not provide complete information about post-retirement benefit obligations, FASB said. They allow an employer to recognize an asset or liability in its balance sheet that “almost always differs” from the actual overfunded or underfunded standing of the benefit plans, FASB said.The proposed changes, signaled by FASB last year, would be effective for fiscal years ending after Dec. 15, and therefore would start appearing in company reports early next year. The rule will apply to pension plan sponsors that are public and private companies and non-governmental not-for-profit organizations.The accounting standards board is accepting written comments on the proposal by May 31. The FASB is the designated organization for establishing standards of financial accounting and reporting. The standards govern the preparation of financial reports and are officially recognized by the SEC and certified public accountants.The proposal comes amid a series of bankruptcies in which airlines and others have sought to foist the hefty pension obligations on the federal agency that insures retirement plans. At the same time, major companies, including Sears Roebuck & Co., Motorola Inc., Verizon Communications Inc., and International Business Machines Corp., have been freezing their pensions benefits to cut costs.George Batavick, a member of FASB, said investors, creditors and staff of the U.S. Securities and Exchange Commission believe accounting for retirement benefits is now incomplete and “makes it difficult to assess an employer’s financial position and its ability to carry out the obligations of its plans.””Today’s proposal, by requiring sponsoring employers to reflect the current overfunded or underfunded positions of post-retirement benefit plans in the balance sheet, makes the basic financial statements more complete, useful and transparent,” Batavick said in a statement.The proposal issued Friday also would require employers to measure pension plan assets and obligations as of the end date of the period covered by the financial statements. Companies now may measure pension benefit obligations as of the balance sheet date or up to three months earlier. The change would force companies to provide information that reflects the latest economic or fiscal developments.Public companies would be required to apply this proposed change to the measurement date for fiscal years beginning after Dec. 15. Nonpublic entities such as not-for-profit organizations, would be subject to that requirement in fiscal years beginning after Dec. 15, 2007.
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