August 2, 2007-- On September 29, 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 158, "Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans" (FAS 158). Another year, another FAS. As earth-shattering as another pronouncement from the FASB is, the question that demands answering is: should I care?

The answer: if your organization sponsors a defined benefit plan or other postretirement benefit plan (collectively referred to as "benefit plans"), then yes, you should care. Both your balance sheet as of June 30, 2007 and the related disclosure in the notes to the financial statements will feel the impact of FAS 158.

Prior accounting standards (FAS 87, 88, 106 and 132(R)) allowed an employer to recognize in its statement of financial position an asset or liability arising from the benefit plans, which almost always differed from the plan’s over funded or under funded status. Those standards permitted a delay of recognition of economic events that impacted the cost of providing these benefit plans. This discrepancy caused concerns that the old standards failed to communicate the funded status in a complete and understandable manner. The funded status was relegated to the notes of the financial statements, in the form of a reconciliation to the amounts recognized in the statement of financial position.

FAS 158 addresses those concerns, improving financial reporting because the information required to now be reported is more complete, timely and, therefore, more representationally faithful. FAS 158 will enable the users of the financial statements to assess an employer’s financial position and ability to fulfill benefit plan obligations. This is done as follows:

• Recognize the funded status of a benefit plan – measured as the difference between plan assets at fair value and the benefit obligation – in the statement of financial position.

• Aggregate the statuses of all over funded plans and recognize that amount as an asset in the statement of financial position. Also, aggregate the statuses of all under funded plans and recognize that amount as a liability in the statement of financial position.

• Recognize as a separate line item within changes in unrestricted net assets, apart from expenses, the gains or losses and the prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit costs (FAS 87 and 106).

• Reclassify to net periodic benefit cost a portion of the net gain or loss and prior service costs or credits previously recognized in a separate line item and a portion of the transition asset or obligation remaining from the initial application of FAS 87 and 106. The contra adjustment shall be reported in the same line item within the changes in unrestricted net assets. Net periodic benefit cost shall be reported by functional classification.

• Disclose in the notes to the financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior costs or credits, and transition asset or obligation.

Implementation guidance can be found by clicking here.  

For more information, contact Patrick Miller in the Accounting and Auditing Department at 215-564-1900.

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