FASB liability on balance sheet

[FAPInJax]

Well, FASB has decided to bury its head in the sand and has approved the PBO being placed on the balance sheet as representative of the liability a defined benefit plan. This was done despite strenuous objections from employers and actuaries explaining why this was not a good measure of liability.

Is it possible under the guidelines set out by the American Academy or other actuarial bodies to attach a letter to the FASB numbers when provided stating that they should NOT be used for the purpose intended by the FASB board?? (I am just wondering whether we as actuaries have a responsibility knowing that the numbers are not good for the stated purpose to let the client know under the rules of conduct.)

Any opinions??

[Guest Texas_Acty]

Well, FASB has decided to bury its head in the sand and has approved the PBO being placed on the balance sheet as representative of the liability a defined benefit plan. This was done despite strenuous objections from employers and actuaries explaining why this was not a good measure of liability.

Is it possible under the guidelines set out by the American Academy or other actuarial bodies to attach a letter to the FASB numbers when provided stating that they should NOT be used for the purpose intended by the FASB board??

That is probably not adviseable.

If the FASB pronounced the PBO as the liability measure that must be shown on the balance sheet, by definition then, the PBO is "a good measure of liability", just not what we actuaries would call a good measure. Just as the FASB-mandated discount rate is not what many of us actuaries would call a "good assumption", we still adhere to that accounting profession rule because they are the maker of those rules.

[Chester]

I agree with Texas Acty. While I agree with Frank about the inappropriate use of PBO for this purpose (and wrote a comment letter to the FASB Board regarding the use of PBO instead of ABO), the Board does set the rules and we are required to play by them. Hopefully this will be changed during phase 2 of the FASB project to rewrite the pension accounting standard, but phase 2 may well bring us other more ominous changes.

[AndyH]

Both of the sponsors that will continue to maintain pay related, non-frozen DB plans after 2006 could perhaps benefit from one or more official industry-group commentary documents that they could be referred to.

[david rigby]

It probably won't matter: all plans will be frozen and PBO=ABO.

[SoCalActuary]

Now if we could only get the pension plan for the SEC people restated on PBO. (Oh, but that's the Fed's and they don't have to comply.)

Look for a similar crisis in gov't plans when they start complying with GASB, or defense contractors on CASB standards.

Seriously, the securities people (including Mark Warshasky (sp) at Treasury) think this will only be a minor disruption in the stock market. It will result in serious differences between proposed pension funding rules and financial disclosure rules, but that's fine with Treasury.

As has been said above. this will also encourage pension sponsors to go career accumulation on plan benefits.

In addition, it will create opportunities for stock market predators to gut a company's pension plan to produce quick earnings.

I believe the only people who could change this are the Congress. Will they? Only if we start lobbying.

[JAY21]

For those of us weak-FAS types, where on the typical FASB 87/132 Format does this change show the a difference from prior (old) rules ? We're already using PBO for net periodic pension cost, and it's shown and used on the liability page too, for certain purposes. Is the change in the "Other Liability" category where we now have to recognize at least the unfunded PBO instead of the previous unfunded ABO ? Any other changes ?

[SoCalActuary]

For actuaries in the Los Angeles area, the EA workshop on Monday Aug 7 will feature a discussion on the proposed new FAS disclosures. Location - Price Raffel Brown - Century City. Time 5 PM to 7 PM

A session will also be held at the COPA annual conference on August 18-19 in Chicago. (Typing too fast is embarrassing! I said May)

For more info: www.collegeofpensionactuaries.org

[Guest Steve C]

A session will also be held at the COPA annual conference on May 18-19 in Chicago.

For more info: www.collegeofpensionactuaries.org

I think SoCal meant to say that the COPA annual conference will be August 18-19 in Chicago.

[SoCalActuary]

The new standards include much more than the change from ABO minimum liability to PBO liability.

The impact on Comprehensive Other Income is important.

The change to direct balance sheet recognition is important.

The effect of assumptions and valuation date are still controversial.

In addition, the COPA conference is already filled, almost to capacity.

[Guest Grant]

How will this be "made" official? I saw one article, but has the FASB come out and affirmed this? I couldnt find it on their site. Will a final draft be issued soon?

[david rigby]

The FASB has stated their intention to issue a final standard "by September 2006."

http://www.fasb.org/draft/ed_pension&p...ement_plans.pdf

Likely, they are on course for that schedule.

[SoCalActuary]

The pension trade press reported that the FASB has concluded their deliberations.

PBO will win the disclosure battle.