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Guest Article

Deloitte logo

(From the October 9, 2006 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

FASB Issues New Standard on Accounting for Pensions and Other Postretirement Benefits


The Financial Accounting Standards Board (FASB) on September 29, 2006 issued a new accounting standard for recognizing obligations associated with single-employer defined benefit pension, retiree medical, and other postretirement benefit plans on company financial statements. The new standard, Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, applies to public and private companies and nongovernmental not-for-profit organizations.

Summary of New Standard

According to a FASB press release, the new standard requires an employer to:

  1. Recognize in its statement of financial position an asset for a plan's overfunded status or a liability for a plan's underfunded status;

  2. Measure a plan's assets and its obligations that determine its funded status as of the end of the employer's fiscal year (with limited exceptions); and

  3. Recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income of a business entity and in changes in net assets of a not-for-profit organization.

Prior to this new standard, employers could disclose the funded status of their plans in notes to their financial statements. Additionally, previous standards allowed employers to delay recognition of certain changes in plan assets and obligations. The press release states, "The new standard was developed in direct response to concerns expressed by many FASB constituents that past standards of accounting for postretirement benefit plans needed to be revisited to improve the transparency and usefulness of the information reported about them."

Effective Dates

The new standard is effective for fiscal years ending after December 15, 2006 for publicly traded companies, and for fiscal years ending after June 15, 2007 for all other entities. The requirement to measure plan assets and benefit obligations as of the date of the employer's fiscal year end statement of financial position is effective for fiscal years ending after December 15, 2008.

Now Phase Two Begins

Statement No. 158, which amends FASB Statements No. 87, 88, 106, and 132R, represents the completion of the first phase of FASB's comprehensive project on the accounting and reporting standards for defined benefit pension and other postretirement plans. The second phase is supposed to focus on the methodology of pension accounting. Specific issues to be addressed include:

  • how to best recognize and display in earnings and other comprehensive income the various elements that affect the cost of providing postretirement benefits;

  • how to best measure the obligation, in particular the obligations under plans with lumpsum settlement options;

  • whether more or different guidance should be provided regarding measurement assumptions; and

  • whether postretirement benefit trusts should be consolidated by the plan sponsor.

This second phase is expected to last for at least three years. The first phase took less than one year after FASB voted to add the project to its agenda in November of 2005. FASB issued its Exposure Draft on Employers' Accounting for Defined Benefit Pension Plans on March 31, 2006.


Deloitte logoThe information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.

If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955.

Copyright 2006, Deloitte.


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