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 plans. FASB said the Proposed Accounting Standards Update (ASU), Proposed Improvements to Disclosures about an Employer’s Participation in a Multiemployer Plan , 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 .
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