FASB proposals address retirement benefit reporting

FASB issued two proposals Tuesday that are designed to address financial reporting issues related to retirement benefits.

Proposed Accounting Standards Update (ASU), Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, addresses a concern that the presentation of defined benefit cost on a net basis combines elements with different predictive values. Users of financial statements have told FASB that the service cost component of net benefit cost is analyzed differently from other components.

Under the proposal, an employer would report the service cost component in the same line item or items as other compensation costs arising from services rendered by the affected employees during the period. The other components of net benefit cost as defined in Paragraphs 715-30-35-4 and 715-60-35-9 would be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.

The proposal states that if a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. In addition, the proposal would allow only the service cost to be eligible for capitalization when applicable (e.g., as a cost of internally manufactured inventory or a self-constructed asset).

Amendments in the proposal would apply to all employers, including not-for-profits, that offer defined benefit pension plans, other post-retirement benefit plans, or other types of benefits accounted for under Topic 715.

Comments can be submitted by April 25 on FASB’s website.

Disclosure changes

In Proposed ASU, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans, FASB intends to help employers disclose material information while providing an option to exclude immaterial information.

The exposure draft proposes amendments specifically for defined benefit plan disclosures that FASB previously proposed in September 2015 for all disclosures related to materiality in notes to financial statements. The more wide-ranging September proposal is subject to redeliberations following a comment period, and the amendments proposed Tuesday will be considered only in the context of defined benefit plan accounting.

For disclosures related to an entity’s defined benefit plans, Tuesday’s exposure draft proposes:

• That an entity shall provide required disclosures if they are material.
• That standards should omit phrases such as “an entity shall disclose at a minimum,” which make it difficult to justify omitting immaterial disclosures.
• That readers be referred to Topic 235, Notes to Financial Statements (as would be amended by the guidance in the proposed update on that topic), for discussion of the appropriate exercise of discretion.

The proposal would apply to all employers that sponsor defined benefit pension or other post-retirement plans.

Comments are due April 25 on FASB’s website.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.