Human Capital & Careers

FASB to Look at Pension Accounting

FAS 87 coming under the microscope; should costs be broken out?
Jennifer CaplanApril 11, 2003

In a meeting next week, members of the Financial Accounting Standards Board (FASB) are expected to begin crafting a plan for improving corporate pension-plan disclosure under FAS 87.

According to Dow Jones Business Wire, the standards-setting body will reportedly discuss whether companies should be required to disclose more information about their pension assets and their methods of forecasting market returns on assets. FASB is expected to discuss ways of improving pension-plan disclosure rather than overhauling the rules completely.

“I’m going to be asking the board to agree with a framework that we’ll be using,” said Peter Proestakes, head of FASB’s pension effort. “It’s not a meeting that’s going to dive right in and decide on specific disclosures.”

Proestakes will likely identify various areas of pension reporting that could use some improvement—among them, treatment of expected rates of return on assets, corporate cash flow, and pension cost, according to Dow Jones. Under current rules, pension costs can be parsed—and often buried—in a company’s SG&A. What’s more, employers are only required to disclose details related to pension assets once a year.

Current accounting principles that let companies take some assets and liabilities off their balance sheet and amortize them over time as income or expenses are raising particular concern. This treatment allows companies to report expected returns on assets rather than actual losses or gains.

FAS 87 began to draw increased scrutiny late last year when a number of companies reported their plans were underfunded—sometimes by billions of dollars.

A number of companies, including GM, Ford, and IBM, have announced in recent earnings statements that they would contribute large sums to bolster their funds. In some cases, the pension-plan contributions have had an impact on earnings.