At its meeting earlier this week, the FASB (1) agreed to add to its agenda a project to improve the presentation of net periodic benefit cost for defined benefit pension and other postretirement benefit plans and made related tentative decisions; and (2) continued discussion of, and made tentative decisions about, disclosure requirements in ASC 715¹ related to an employer’s defined benefit plans.

Improving the Presentation of Net Periodic Benefit Cost

Under current U.S. GAAP, there is no specific guidance on where in the income statement an entity should present the amount of net benefit cost, which comprises components related to the employer’s financial arrangements as well as the cost of benefits earned by employees. In addition, many stakeholders are critical of the net presentation because it combines elements that are distinctly different. Consequently, the Board approved the FASB staff’s proposal to add a project to improve the presentation of net benefit cost.

The Board discussed the FASB staff’s outreach regarding various alternatives to improve the presentation of net benefit cost in the income statement. After deliberating, the Board tentatively agreed that if a defined benefit plan is material, (1) current service cost should be presented with other current employee compensation costs in the income statement and (2) the remaining components of net benefit cost should be presented in the income statement as a separate line item outside of operating items. In addition, the Board tentatively agreed that net benefit cost eligible for capitalization (e.g., as part of inventory) should be limited to service cost. The Board directed its staff to prepare a staff draft for review by the Board and external parties before it makes a decision to issue a proposed Accounting Standards Update.

Defined Benefit Plan Disclosure Requirements

The FASB discussed changes to an employer’s defined benefit plan disclosures based on the proposed concepts in the Board’s disclosure framework exposure draft² and feedback received through the FASB staff’s outreach to stakeholders. The Board tentatively decided to add an overall objective for the disclosures and guidance on how an entity would consider materiality in determining the extent of its defined benefit plan disclosures.

The Board tentatively agreed to add the following disclosure requirements:

• Nature of the benefits provided, the covered employee groups, and a description of the type of plan formula.
• The weighted-average interest crediting rate used in an entity’s cash balance pension plan(s).
• Quantitative and qualitative disclosures similar to those required under ASC 820 for plan assets that an entity measures by using the net asset value practical expedient.
• A narrative description of the reasons for significant gains and losses resulting from plan remeasurement.
• Separate disclosures about U.S. plans and plans outside the United States. (Currently, this disaggregation is required only when the non-U.S. plans are “significant relative to the total benefit obligation” and use “significantly different assumptions.”)

The Board also tentatively agreed to remove the following disclosure requirements:

• The amount of the accumulated benefit obligation.
• For pension plans with accumulated benefit obligations in excess of plan assets, the aggregate pension accumulated benefit obligation and aggregate fair value of plan assets. (For pension plans with projected benefit obligations in excess of plan assets, entities would still need to disclose the aggregate projected benefit obligation and aggregate fair value of plan assets.)
• Information about plan assets to be returned to the entity.
• Disclosures related to transactions resulting from the June 2001 amendment to the Japanese Welfare Pension Insurance Law.
• Disclosures about (1) benefits covered by related-party insurance and annuity contracts and (2) significant transactions between the plan and related parties. (Entities would only need to provide the related-party disclosures required under ASC 850.)
• The amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year.

All of these changes would be applicable to all entities. The Board tentatively decided that the proposed changes in disclosure would be applied retrospectively, except for those related to disclosures about plan assets that entities measure by using the net asset value practical expedient, which would be made prospectively. The Board plans to continue discussing possible changes to disclosure requirements for defined benefit plans at a future meeting.

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1 For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”

2 FASB Exposure Draft, Conceptual Framework for Financial Reporting — Chapter 8: Notes to Financial Statements.