158 Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans
. FASB is conducting its retirement benefits project in phases. The goal of phase 1 is to make balance sheets more complete, transparent, and understandable. FAS 158 is intended to do that. Phase 2 is comprehensive reconsideration of accounting for pensions and other retirement plans. For an entity whose securities are traded in a public market, the recognition provisions of FAS 158 (see below) are effective for fiscal years ending after 15 December 2006. For non-public entities, the effective date is fiscal years ending after 15 June 2007. FAS 158 also requires that employers measure plan assets and benefit obligations as of the balance sheet date; this requrement takes effect for all entities for years ending after December 15, 2008. In July 2006, the IASB added to its agenda a two-phase Project on Post-Retirement Benefits including Pensions
. The IASB plans to complete phase 1 in 2010 with an interim standard that would address presentation and disclosure, definition of defined benefit and defined contribution arrangements, accounting for cash balance plans (possibly), smoothing and deferral mechanisms, and treatment of settlements and curtailments. Click for (PDF 56k). FAS 158 is available on FASB's Website
Under FAS 158, an employer that is a business entity is required to:
- Recognise in its statement of financial position the overfunded or underfunded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation. For a pension plan, the benefit obligation would be the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation would be the accumulated postretirement benefit obligation.
- Recognise as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period but pursuant to FASB Statements No. 87 Employers' Accounting for Pensions and No. 106 Employers' Accounting for Postretirement Benefits Other Than Pensions, are not recognised as components of net periodic benefit cost. Amounts recognised in accumulated other comprehensive income would be adjusted as they are subsequently recognised as components of net periodic benefit cost pursuant to the recognition and amortisation provisions of Statements 87 and 106.
- Any remaining transition amounts from initial adoption of FAS 87 and FAS 106 would also now be recognised in measuring a plan's funding status and in other comprehensive income.
For many entities with defined benefit plans, FAS 158 could result in increased liabilities, with corresponding reductions in equity.