DB Clients Should Know About Proposed Accounting Changes

Comments are due to the FASB by April 26.

By Rebecca Moore | January 29, 2016
Page 1 of 2

The Financial Accounting Standards Board (FASB) has proposed changes to reporting for defined benefit (DB) plans and other post-retirement benefits.

In Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, FASB explains that under generally accepted accounting principles (GAAP), defined benefit pension cost and post-retirement 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.

According to FASB, many stakeholders have observed that the presentation of defined benefit cost on a net basis combines elements that are distinctly different in their predictive value. As such, these stakeholders have stated that the current presentation requirement has less value and requires users to incur greater costs in analyzing financial statements. The reduced transparency in the presentation of net benefit cost also reduces the usefulness of financial information.

The amendments in the proposed update would require an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost would be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described.

Text of the proposal is here. Comments are due by April 26.

NEXT: Other disclosure requirement changes