United States

Proposed standards for employer reporting of certain benefit plans


The Financial Accounting Standards Board (FASB) recently issued two proposed Accounting Standards Updates (ASUs) to improve financial reporting by employers related to defined benefit pension and other postretirement benefit plans:

  • The proposed ASU, Compensation — Retirement Benefits — Defined Benefit Plans — General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans, is part of the FASB’s broader disclosure framework project aimed at improving the effectiveness of disclosures in the notes to financial statements by focusing on the information that is most relevant to financial statement users. Accordingly, if finalized, this proposed ASU would remove certain disclosure requirements from FASB Accounting Standards Codification (ASC) Subtopic 715-20. In addition, the following disclosure requirements would be added to Subtopic 715-20:
    • A description of the nature of the benefits provided, the employee groups covered and the type of benefit plan formula
    • The weighted-average interest crediting rate for cash balance plans and other plans with a promised interest crediting rate
    • Quantitative and qualitative disclosures from ASC Topic 820, Fair Value Measurement , about assets measured at net asset value using a practical expedient
    • A narrative description of the reasons for significant gains and losses affecting the benefit obligation or plan assets
    • For nonpublic entities, the effects of a one-percentage-point change in assumed health care cost trend rates (this disclosure is currently required only for public entities)
  • The proposed ASU, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, seeks to improve guidance related to the presentation of defined benefit costs in the income statement. Under generally accepted accounting principles, defined benefit pension cost and postretirement benefit cost (net benefit cost) comprise several components that reflect different aspects of an employer’s financial arrangements, as well as the cost of benefits provided to employees. Those components are aggregated for reporting in the financial statements. Stakeholders have observed that the current presentation of defined benefit cost on a net basis combines elements that are distinctly different in their predictive value. This makes it more costly for investors and other users to analyze and understand that information.
  • The proposed ASU would address these issues by requiring a reporting organization to separate the service cost component from the other components of net benefit cost for presentation purposes. It also would provide explicit guidance on how to present the service cost component and other components of net benefit cost in the income statement. The proposed ASU would allow only the service cost component of net benefit cost to be eligible for capitalization.

The proposed ASUs are available for comment until April 25, 2016.