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Review of Pension Disclosure Amendments to Continue Into 2017

The FASB instructed its staff to continue examining the proposed changes to the disclosure rules for defined benefit pension plans. The review is part of a broader effort by the board to clean up the disclosure rules throughout U.S. GAAP.

The FASB on July 13, 2016, instructed its staff to continue studying the accounting board’s proposed changes to U.S. GAAP’s disclosure rules for defined benefit pension plans.

The review is part of a more extensive analysis the board is undertaking for its Disclosure Framework in advance of a November roundtable. The board’s discussion of the comments submitted in response to Proposed Accounting Standards Update (ASU) No. 2016-210, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans, mainly focused on its interest in determining the extent to which investors rely on the information made available through the standard’s disclosure rules. The proposal was issued in January 2016 to call for adding some footnote disclosure rules and removing others for employers that offer pensions and other retirement plans with defined benefits. Comments were due in April.

According to an analysis by the FASB’s staff, about one-third of the respondents to the proposal disagreed with the removal of a requirement that employers disclose the value of the pension benefits as measured in what is called an accumulated benefit obligation. But board members questioned the extent to which the information was useful, given the trends in business extending back several decades that prompted most employers to scrap their defined benefit pensions and replace them with defined contribution retirement plans like 401(k)s.

Board members asked the staff if the disclosure of the accumulated obligation could be replaced with other information that investors were more likely to use, such as the difference between the obligation and the cost an employer incurs for paying a one-time settlement to employees to terminate the plan.

“What’s the trend in the settlements?” asked FASB Chairman Russell Golden. “If there is a settlement, how close is the settlement figure to the [accumulated obligation]?”

Board members also wanted to know how the various comments fit with the feedback submitted in response to other aspects of the Disclosure Framework, which is the board’s overall review of U.S. GAAP’s more significant disclosure rules. The FASB has been reviewing its disclosure rules for the past several years with the intent of cutting requirements that it considers redundant or no longer useful. Investors have been concerned that the effort to reduce the number of disclosures tied to financial reports will bar them from receiving valuable information. Some of the investors the FASB’s staff spoke to called the pension requirements the “poster child” for good disclosure rules and were reluctant to see them altered, according to Nicholas Cappiello, the staffer managing the project.

But board members were skeptical that all the pension disclosures should be left intact and singled out rules like those associated with Japanese pension funds as described in ASC 715-20-50-10, Compensation — Retirement Benefits — Defined Benefit Plans — General — Disclosure, formerly Emerging Issues Task Force (EITF) Issue No. 03-2, as being particularly ripe for elimination.

“What’s interesting from my standpoint is that, well, you said this is the poster child for users saying this is good disclosure. This is also the poster child for preparers saying this is totally overblown and takes up way too much space in my annual report,” said FASB member Lawrence Smith.

Because the board wants to see how each phase of the Disclosure Framework fits into the overall scheme, it is delaying the final decisions until each phase of the review is at a more advanced stage. That partly explains why the board is staking so much of the Framework’s outcome on what it learns from the November roundtable.

“I think the analysis that we’ll pull together will be the accumulation of some of the feedback that we’ve gotten on all four of these topics as it relates to the Framework,” said Susan Cosper, the FASB’s staff director, in reference to other proposals in the Framework. “Some of it isn’t all consistent, and that’s the thread that needs to be woven to pull it back into the Framework.”

Proposed ASU No. 2016-210 was published at the same time as Proposed ASU No. 2016-200, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The cost proposal was issued to change the way pension costs are presented in income statements and requires employers to provide breakdowns of the most significant aspects of pension and retirement benefit costs. A FASB spokesperson said the board is scheduled to review the comments submitted in response to it on August 24.

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