News & Information

 

FEATURED PRODUCT

5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.

Learn More »

CCH® PENSION AND BENEFITS — 9/24/08

Employers balk at proposed international pension accounting rules, survey finds

The Securities and Exchange Commission’s (SEC’s) vote to move U.S. companies toward International Accounting Standards represents a move toward a global convergence of accounting standards. Changes made by the International Accounting Standards Board (IASB) could have important implications for publicly traded companies around the world. Yet, a recent survey by Watson Wyatt Worldwide revealed that many companies are not familiar with the IASB’s proposed changes to IAS19, its standard for accounting for employee benefits, and the majority of those that are do not support its proposal. However, employers do believe that changes to current pension accounting standards are necessary.

In the survey of 131 finance and employee benefit directors across 17 countries, most respondents said change is needed in several key areas of pension accounting. Improvements to the requirements for measuring the assets and liabilities of cash balance and similar pension plans are viewed as most necessary, with eight in 10 employers desiring change in this area.

A narrower majority (56 percent) agrees with the IASB that pension accounting should change by removing options to defer the recognition of plan gains and losses. Eighty percent of respondents, however, do not support the IASB’s suggestion to recognize all plan experience immediately in the profit and loss account, one of three options the IASB is considering in this area.

“The IASB’s proposal would make significant changes to the way retirement benefits are accounted for under International Financial Reporting Standards,” said Eric Steedman, a senior international consultant at Watson Wyatt. “With a global convergence of accounting standards on the horizon, these changes could have important implications for publicly traded companies around the world. All employers would be well served to familiarize themselves with the proposals and assess the potential impact of the changes on their existing plans.”

Many companies have not reviewed proposals

As of early July 2008, 36 percent of surveyed companies had reviewed the IASB proposals to gain a better understanding of the issues being considered, and another 46 percent planned to do so before September 26, 2008, the end of the comment period. Only 12 percent had completed an analysis to determine the potential ramifications of the changes for their plans, but about half of the respondents (51 percent) planned to do so.

While the changes would not reduce most employers’ commitment to offering pension plans, sizeable minorities said the proposed changes to cost recognition (46 percent) and to the measurement of contribution-based plans (24 percent) would discourage them from offering defined benefit plans in the future.

“If implemented, the proposed changes could mean higher assessments of liabilities and increased volatility in employer financial statements,” said John Steele, a senior retirement consultant at Watson Wyatt. “In order to develop a workable standard that supports employers continuing to offer pension plans, it will be critical for companies to communicate their concerns and engage the IASB in a dialogue on the proposal as it evolves into a final standard.”

Other proposed changes that are unpopular among employers include:

- Introducing the contribution-based promise, a new classification of benefit that would include cash balance, career average, notional defined contribution and flat dollar/multiplier plans. It would use a different measurement approach than final average pay and retiree medical plans, a change 50 percent of respondents find inappropriate and 38 percent support.

- Requiring the measurement of pension obligations to reflect credit risk, which 54 percent of employers find inappropriate and 29 percent support.

- Introducing different accounting treatment for in-payment annuities based on how they were defined as they were accumulating, a change 53 percent of respondents find inappropriate and only 24 percent support.

U.S. companies less informed

According to the survey, while only 10 percent of companies located in Europe and the United Kingdom are unfamiliar with the IASB’s discussion paper, 34 percent of U.S. respondents and 44 percent of survey participants from other regions are not familiar with the proposal.

Visit our News Library to read more news stories.