Blogging Employee Benefits

March 31, 2006

FASB Exposure Draft of New GAAP for Pensions and OPEBs

Filed under: Accounting, OPEBs, Pensions — Fuguerre @ 7:48 am

The Financial Accounting Standards Board has published its exposure draft of a new accounting standard for employers' accounting for defined benefit pension plans and other post-employment benefits. [No. 1025-300; News Release]

  • Unrecognized Balances Move To Balance Sheet – Unrecognized gains or losses, unrecognized prior service costs from plan amendments, and any remaining unrecognized net asset or obligation from original transition to the current accounting rules would be reported as a charge or credit to other comprehensive income (OCI), net of tax timing differences, essentially decreasing or increasing the net worth of the company. For the overwhelming majority of employers that sponsor defined benefit pensions or OPEBs, the change would reduce or even eliminate the company's net worth, due to huge balances of unrecognized net losses accumulated through the past six years of declining interest rates and weak asset returns during 2000-2002.
  • Measurement Date Synchronized With Financial Statement Date – The measurement date would be required to be the close of the fiscal year, instead of the current rule that permits measurement as early as 3 months before the close of the year.
  • Effective As Early As End of 2006 – The key balance sheet changes would be effective for fiscal years ending after 12/15/2006. For any financial statement issued under the new standard, all previous years that are displayed would be required to use the new rule for relevant balance sheet amounts, unless impractical to do so. For balance sheet reporting by all employers, the measurement date change would be effective for fiscal years ending after 12/15/2007. For that change, previous years reported on any financial statement should use the amounts determined as of the original measurement dates. For determination of pension or OPEB cost for taxable public employers, the measurement date change would be effective for fiscal years beginning after 12/15/2006. For determination of pension or OPEB cost for tax-exempt entities and non-public entities, the effective date would be delayed a year, to fiscal years beginning after 12/15/2007.

FASB seeks comments on the exposure draft by 5/31/2006. The final standard is expected to be published in September 2006. Following publication of the final standard, FASB would proceed to phase 2 of its pension/OPEB project, conducting a sweeping overhaul of the complete standard for measurement and reporting of pension and OPEB costs, assets and obligations.

See Fugue: Accounting for links to additional source documents and previous Pensions & Benefits Weblog posts on the FASB pension/OPEB accounting project.

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