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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.
The Financial Accounting Standards Board (FASB) has issued a standard that will require employers to fully recognize the obligations associated with single-employer defined benefit pensions and other postretirement plans in their financial statements as early as fiscal years ending after December 15, 2006. Financial Accounting Statement (FAS) No. 158, "Employers' Accounting for Defined Benefit Pensions and Other Postretirement Plans," represents the culmination of Phase I of an FASB project to revise how retirement plan assets are accounted for in a company's financial statements. Publicly-traded companies are the first to be affected by the new requirements. FAS No. 158 amends existing FAS Nos. 87, 88, 106, and 132R.
FASB's goal in issuing the standard is to make it easier for investors, employees, retirees and others to understand and assess an employer's financial position and its ability to fulfill the obligations under its benefit plans. Under prior accounting standards, the funded status of an employer's postretirement benefit plan (i.e., the difference between the plan assets and obligations) was not always completely reported in the balance sheet. Employers reported an asset or liability that almost always differed from the plan's funded status because previous accounting standards allowed employers to delay recognition of certain changes in plan assets and obligations that affected the costs of providing such benefits. Past standards only required an employer to disclose the complete funded status of its plans in the notes to the financial statements.
Initially, publicly traded companies with fiscal years ending after December 15, 2006, are required to recognize the funded status of their defined benefit retirement plans, retiree healthcare, and other postretirement benefit plans in their financial statements using the projected benefit obligation method. Nonpublicly traded companies and nongovernmental non-for-profit organizations must disclose the funded status of their retirement plans in their financial statements for fiscal years ending after June 15, 2007.
FAS No. 158 postpones until fiscal years ending after December 15, 2008, the date when the measurement date of plan assets and benefit obligations must be the same as the employer's fiscal year-end date. During the two-year phase-in period, if the plan sponsor terminates the plan or "enters into a transaction that results in a settlement," the related gain or loss "is required to be recognized in earnings or changes in unrestricted net assets of" the quarter in which it occurred. This is an administrative change that will affect actuaries, investment managers, and plan sponsors because they will no longer have a 90-day window in which to gather information prior to the company's fiscal year-end date.
The issuance of Statement No. 158 completes the first phase of the Board's comprehensive project to improve the accounting and reporting for defined benefit pension and other postretirement plans. A second, broader phase of this project will comprehensively address remaining issues. The Board plans to collaborate with the International Accounting Standards Board on that phase.
For more information on this and related topics, consult the CCH Pension Plan Guide.
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