Commentary: FASB changes to defined benefit plan disclosure requirements

On Aug. 28, the Financial Accounting Standards Board issued changes to the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans.

The changes are aimed at improving the effectiveness of financial statement disclosures by eliminating the requirement for certain disclosures FASB no longer considers cost beneficial and requiring new disclosures that FASB considers relevant. The board does not anticipate significant cost increases because of the changes, as the information shown in the newly required disclosure should be readily available.

Here are the details on the changes to Accounting Standards Codification 715-20.

These disclosure requirements are removed:

• The amounts in accumulated other comprehensive income expected to be recognized into net periodic cost for the following fiscal year. This means the plan's consultant can eliminate the time spent estimating the gain/loss amortization and adjustment of prior service costs bases
• The amounts and timing, if any, of assets expected to be returned to the employer. This is a rare situation mostly dealing with plans that terminate with excess assets. FASB decided to remove this disclosure because it is not broadly relevant.
• Material related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law. The law allowed for the transfer of pension assets and liabilities to the government. FASB decided to remove this disclosure because it is not broadly relevant.
• Material about the future annual benefits covered by insurance or annuity contracts and significant transactions between the employer or related parties and the plan. FASB decided to remove this disclosure because it is not broadly relevant and related-party disclosures are subject to other disclosure requirements.
• For non-public entities, the reconciliation of the Level 3 plan asset hierarchy. There is still a requirement for separate disclosures for non-public entities related to purchases of or amounts transferred into or out of Level 3 assets. This change will ease the burden of reconciling unobservable inputs. The plan sponsor will require less information from the trustee.
• For public entities, the disclosure of a 1-percentage-point increase/decrease in the assumed health-care trend rates on the aggregate of the service and interest costs components of the net periodic benefits costs, and benefit obligation for post-retirement health-care benefits. The plan's actuary no longer will be required to perform these calculations.

The following disclosure requirements are added:

• For cash balance and other plans with a promised interest crediting rate, the weighted average of the interest crediting rates. The plan's actuary will need to perform this calculation if the plan has a variable interest crediting rate.

• Explanation of the reasons for significant gains and losses concerning the benefit obligation. The plan's actuary will need to individually identify reasons for significant gains/losses they should already have identified and discussed with the plan sponsor.

The following clarifications were made to disclosure items for entities that have multiple plans and present aggregate disclosures:

• The accumulated benefit obligation and fair value of assets shall be disclosed for pension plans with assets less than the ABO.
• The projected benefit obligation and fair value of assets shall be disclosed for pension plans with assets less than the PBO.
• The accumulated post-retirement benefit obligation and fair value of assets shall be disclosed for post-retirement plans with assets less than the APBO.

Plan sponsors that aggregate multiple plans now need to disclose the ABO/PBO/APBO and assets for each plan for which the liability exceeds assets. Previously sponsors could combine all underfunded plans instead of making separate disclosures.

These changes are effective for public entities for fiscal years ending after Dec. 15, 2020; Dec. 15, 2021 for all other entities. Early adoption is permitted. Plan sponsors should discuss early adoption with their actuaries and auditors.

David Davala is a senior consultant in the actuarial services practice of Findley, Cleveland. This content represents the views of the author. It was submitted and edited under P&I guidelines but is not a product of P&I's editorial team.