Financial Accounting Standards Board today unveiled a proposal that would require public and private companies, as well as not-for-profits, to report the funded status of their pension and other postretirement plans on their balance sheets. The proposal is the first of two phases of FASB's effort to improve the transparency of pension accounting.
"The main issue is that current accounting does not give you a complete picture," George Batavick, a FASB member, said in a telephone interview. "When you look at these plans, current information does not let the reader easily determine what the economic status of these plans is - whether they're fully funded, overfunded or underfunded."
The proposal would also require employers to measure plan assets and obligations as of the date of their financial statements.
The proposal is open for comment until May 31, and at least one hearing on the proposal is scheduled for June 27 in Norwalk, Conn., where FASB is based.
Mr. Batavick said he hopes the final standard will be released in the third quarter of this year. The funded-status reporting standard would take effect for fiscal years beginning after Dec. 15, 2006.
"We're trying to allow investors and other interested parties, whether regulators, employees or retirees, to see the full impact of these (pension and postretirement) obligations" on plan sponsors, he said. "We believe complete reporting should have those promises on the balance sheet."
In a research note, Howard Silverblatt, senior index analyst at Standard & Poor's, called the proposal "the first wake-up call for investors, retirees and workers."
Once the first phase is completed, FASB staff will begin researching the second phase, which will focus on the measurement of pension and postretirement obligations and what should be reported in profit and loss statements, Mr. Batavick said. He said that would likely begin in 2007.