Industry Insights

On September 1, 2010, the Financial Accounting Standards Board (FASB) issued an exposure draft of proposed Accounting Standards Update of Subtopic 715-80, Compensation – Retirement Benefits – Multiemployer Plans. The proposed changes affect all nongovernmental entities that participate in multiemployer plans, e.g., pension or retiree health care, and issue financial statements prepared in accordance with U.S. generally accepted accounting principles.

Why Has FASB Issued This Exposure Draft?

FASB is issuing this exposure draft primarily in response to constituents’ concerns of perceived lack of transparency regarding employer participation in multiemployer plans.

FASB believes the proposed changes will enhance transparency and provide financial statement users with more information about the commitments an employer has made to multiemployer plans and the potential effects of participation.

What Is the Potential Effect?

The proposed amendments require additional quantitative and qualitative disclosures including, but not limited to, the:

• Number of plans in which the employer participates
• Names of individually material plans
• Narrative descriptions for employer’s exposure to significant risks and uncertainties, how benefit levels are determined, whether the employer is represented on the plan governing body, consequences of ceasing contributions and funding improvement or rehabilitation plans
• Description of the nature and effect of any changes affecting comparability
• Total assets and accumulated benefit obligation of the plan as a whole
• Employer’s contributions as a percentage of total plan contributions
• Description of the contractual arrangement including term of current arrangement, agreed-upon basis for determining future contributions and any minimum contribution requirements
• Percentage of employees covered by the plan(s)
• Quantitative information about the employer’s participation in the plan, such as number of active and retired participants covered by the plan(s) as compared to all active and retired participants in the plan(s)
• Amount of contributions in the current period and expected contributions for the next period
• Known contribution trends
• Estimated liability for withdrawal from or windup of the plan, even if withdrawal or windup is not currently contemplated.

If any of the aforementioned disclosure information is not obtainable, the financial statement issuer shall disclose the reasons why.

While FASB recognizes additional time and expense will be necessary to prepare the required disclosures, it believes the effort and cost needed to gather the information is reasonable.  

The proposed changes will expand disclosures, but they will not alter the current recognition and measurement requirements for multiemployer plans. However, when evaluating the impact of this exposure draft, financial statement issuers need to also be aware of proposed changes in another, separate exposure draft on contingencies. 

In the contingencies exposure draft, financial statement issuers who participate in multiemployer plans are required to disclose, as loss contingencies, certain significant withdrawal liabilities, even if ultimate realization of the contingent withdrawal liability is deemed remote. This creates a unique contradiction in the two proposed standards since the Multiemployer Plan Exposure Draft, as noted above, permits an exemption from disclosure of the withdrawal liability if such information isn’t obtainable. However, the contingencies exposure draft gives no such exemption, rebuttably presuming that financial statement issuers will have this information to assess the significance of the contingent liability. It is unclear at this point if or how FASB plans to address this inherent contradiction.

What If I Participate in More Than One Plan?

FASB acknowledges that some entities participate in more than one multiemployer plan. In such instances, note the following:

• Separate qualitative disclosures are required for plans or plan groups with significantly different risk characteristics or contractual commitments.
• Quantitative disclosures would be presented separately for plans that are individually material. Plans that are not individually material and are presented on a combined basis would be required to disclose ranges.  

Effective Date & Transition

FASB proposes the changes be effective for public entities for annual and interim fiscal periods ending after December 15, 2010. The proposal includes a one-year deferral to fiscal periods ending after December 15, 2011, for nonpublic entities.

In the adoption period, entities will not be required to include the proposed disclosure changes for any previous periods presented for comparative purposes.

In periods after the adoption, comparative disclosures will be required for annual, but not interim, comparative periods.

Exposure Draft Comments

Comments to this exposure draft are due by November 1, 2010, and should be submitted to director@fasb.org, File Reference No. 1860-100. Comments also can be mailed to:

Technical Director
File Reference No. 1860-100, FASB, 401 Merritt 7
P.O. Box 5116
Norwalk, CT 06856-5116

For more information on this exposure draft or related matters, please contact your BKD advisor.