Financial Reporting

  FASB issued a Proposed Accounting Standards Update (ASU) that is intended to clarify how defined contribution pension plans should classify and measure loans to participants. Under the Proposed ASU, Plan Accounting—Defined Contribution Pension Plans (Topic 962), Reporting Loans to Participants by Defined Contribution Pension Plans (a consensus of the FASB Emerging Issues Task Force), loans to participants would no longer be presented at fair value.


Participant loans are currently classified as an investment in accordance with the defined contribution pension plan guidance in Accounting Standards Codification (ASC) paragraph 962-325-45-10. ASC Subtopic 962-325 requires most investments held by a plan, including participant loans, to be presented at fair value. The amendments in the Proposed ASU (available at would require that participant loans be classified as notes receivable from participants, which are segregated from plan investments and measured at their unpaid principal balance plus any accrued but unpaid interest. The proposed changes would affect any defined contribution pension plan that allows participant loans.


The proposal says that the classification of participant loans as receivables acknowledges that participant loans are unique from other investments in that a participant taking out such a loan essentially borrows against his or her own individual vested benefit balance. FASB said the task force concluded that it is more meaningful to measure participant loans at their unpaid principal balance plus any accrued but unpaid interest, rather than at fair value.


Amendments in the proposal would be applied retrospectively to all prior periods presented. The effective date will be determined after the EITF considers comments. Early adoption would be permitted. The comment period closed Sept. 7.



  FASB issued an exposure draft that sets forth proposed disclosures that the board believes would help users of financial statements better assess the potential risks faced by employers participating in multiemployer pension plans. FASB said the Proposed Accounting Standards Update (ASU), Compensation—Retirement Benefits—Multiemployer Plans (Subtopic 715- 80), Proposed Improvements to Disclosures about an Employer’s Participation in a Multiemployer Plan (available at, is intended to increase transparency in financial reporting of entities that participate in multiemployer pension and other postretirement benefit plans.


Current U.S. GAAP requires employers to disclose their total contribution to multiemployer plans, but there is no requirement to describe the funding status of these plans. The proposal would require employers to provide more information, including a description of the plans in which the employer is involved, the employer’s contractual commitments to the plans, and the expected impact of participating in the plans on the employer’s future cash flows (including the potential impact of plan withdrawal obligations).


FASB said it has received comments from various constituents on the perceived lack of transparency about an employer’s participation in a multiemployer plan.


Employers commonly use multiemployer plans to provide benefits to union employees who may work for multiple employers in a lifetime and accrue benefits in one plan for their retirement. FASB said a unique risk of a multiemployer plan is that assets contributed by one employer may be used to provide benefits to employees of other participating employers. This is because the assets contributed by an employer are not specifically earmarked for that company’s employees. If a participating employer is unable to contribute due to financial difficulties, the unfunded obligations of the plan may be borne by the remaining participating employers. FASB said this risk was exacerbated by the recent financial crisis.


To support the necessity of expanded disclosures, FASB cited a recent study of more than 100 multiemployer plans, including the largest plans in the country (as measured by assets), indicating that in 2008 those plans were collectively underfunded by more than $160 billion (approximately 44% of their collective plan liabilities).


The proposal would require the following disclosures, among others:

  • Total assets and accumulated benefit obligation of the plan;
  • Quantitative information about the employer’s participation in the plan, for example, the number of its employees as a percentage of total plan participants;
  • A description of the contractual arrangements between the employer and the plan, including the length of the arrangement, the contribution rates agreed to, and any minimum funding arrangements;
  • Expected contributions for the next annual period;
  • Known trends in future contributions;
  • The amount that would be required to be paid upon withdrawal from the plan; and
  • A narrative description of any funding improvement plans adopted by the plan, including the expected effects on the employer.


If approved, the Proposed ASU would apply to public companies for fiscal years ending after Dec. 15, 2010. It would apply to nonpublic companies for fiscal years beginning on or after Dec. 15, 2010.


Comments are due Nov. 1. The ED lists specific questions for respondents to address. A summary of the proposal is available in the Sept. 1, 2010, issue of FASB in Focus at



  The AICPA’s Financial Reporting Executive Committee (FinREC) told FASB in a comment letter ( that it has concerns about auditors’ ability to corroborate information on loss contingencies with the client’s legal counsel until the AICPA and the American Bar Association (ABA) can update a longstanding agreement that details information attorneys are required to share with auditors.


FinREC said it supports FASB’s objectives in a Proposed Accounting Standards Update (ASU), Disclosures of Certain Loss Contingencies (, to improve disclosures so investors can assess the likelihood, timing and amount of future cash flows associated with losses stemming from litigation.


However, the committee pointed out that a 1975 agreement between the AICPA and the ABA, “Statement of Policy Regarding Lawyers’ Responses to Auditors’ Requests for Information,” doesn’t address some of the disclosure items in the Proposed ASU. FinREC said it believes a revision to the agreement is needed before the FASB standard is finalized.


Other AICPA comments included:

  • “If the requirement to disclose certain remote contingencies remains, additional application guidance is necessary. The determination of whether a contingency is frivolous or meets the threshold for disclosure is highly judgmental and will introduce significant complexity and risk into the process of preparing disclosures.”
  • “Overall, we continue to believe that certain of the proposed disclosures could expose a company’s legal strategy and provide plaintiffs with information that could compromise the company in litigation or negotiation settlements, especially in the situations where the lack of contingent claims would prevent sufficient aggregation.”


The comment period closed Sept. 20.

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