The Financial Accounting Standards Board (FASB) issued a proposal that would improve financial reporting by requiring employers to recognize the overfunded or underfunded positions of defined benefit postretirement plans, including pension plans, in their balance sheets. The proposal would also require that employers measure plan assets and obligations as of the date of their financial statements. The proposed changes would increase the transparency and completeness of financial statements for shareholders, creditors, employees, retirees, donors and other users.

The exposure draft applies to plan sponsors that are public and private companies and nongovernmental not-for-profit organizations. It results from the first phase of a comprehensive project to reconsider guidance in Statement No. 87, Employers’ Accounting for Pensions, and Statement No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. A second, broader phase will comprehensively address remaining issues. The Board expects to collaborate with the International Accounting Standards Board on that phase.

Current accounting standards do not provide complete information about postretirement benefit obligations. For example, those standards allow an employer to recognize an asset or liability in its balance sheet that almost always differs from its overfunded or underfunded positions. Instead, they require that information about the current funded status of such plans be reported in the notes to financial statements. That incomplete reporting results because existing standards allow delayed recognition of certain changes in plan assets and obligations that affect the costs of providing such benefits.

The proposed changes, other than the requirement to measure plan assets and obligations as of the balance sheet date, would be effective for fiscal years ending after December 15, 2006. Public companies would be required to apply the proposed changes to the measurement date for fiscal years beginning after December 15, 2006 and nonpublic entities, including not-for-profit organizations, would become subject to that requirement in fiscal years beginning after December 15, 2007.

Submit Comments
Submit comments on the proposal by May 31, 2006 by
e-mail to director@fasb.org, File Reference No. 1025-300. Those without e-mail may send their comments to the "Technical Director—File Reference No. 1025-300," Financial Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, Connecticut 06856-5116.

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