For companies that still carry defined benefit pension plans, the Financial Accounting Standards Board is proposing some changes to the accounting guidance on how to present costs associated with such plans in income statements as well as new disclosures.
Under current accounting rules, companies present defined benefit pension costs and other post-retirement benefit costs on a net basis. FASB says users of financial statements have indicated such a net presentation obscures information on the different components of benefit offerings, making it difficult to understand a company’s financial arrangements and related costs.
To address the concern, FASB is proposing an update to accounting standards to require companies to separate the service cost from other components of the net benefit cost for purposes of presenting it in financial statements. The proposal outlines specific guidance on how to break out and present such costs in the income statement. In addition, FASB says companies would be able to capitalize the service cost component.
In a separate proposal, FASB is calling for changes to the guidance on benefit plan disclosures as part of its more comprehensive project to review all of its disclosure requirements. FASB is proposing additional disclosures around the plan benefits and the reasons for significant gains or losses that affect the benefit obligations or plan assets.
For example, the proposal would require entities to describe the nature of the benefits provided under a given plan, the employee groups that it covers, and the type of benefit plan formula. The proposal also would require disclosure of the weighted-average interest crediting rate for cash balance plans and other plans with a promised interest crediting rate; and quantitative and qualitative disclosures from fair value measurement guidance about assets measured at net asset value using a practical expedient.
The proposal also would eliminate certain disclosure requirements that FASB says stakeholder consider unimportant. Those include the amount of the pension accumulated benefit obligation, certain aggregated figures around obligations and plan assets, the amount and timing of plan assets expected to be returned, certain related party disclosures, and others.
The board is accepting comment on both proposals through April 25.