FASB Proposes Changes in Accounting for Multiemployer Benefit Plans
Posted December 14, 2010
Underfunding has always been a risk for multiemployer benefit plans, but that risk has increased dramatically during the current economic crisis. In light of these conditions, financial statement users have raised concerns about the lack of information provided by current disclosure requirements, and about the commitments and risks involved with an employer’s participation in a multiemployer plan.
In answer to this concern, the Financial Accounting Standards Board (FASB) issued an exposure draft of a proposed accounting standards update that would significantly increase the disclosure requirements of participating employers. The FASB says the proposed update is intended to increase transparency in financial reporting.
Current Disclosure Requirements
The FASB defines a multiemployer plan as a pension or other postretirement benefit plan in which two or more unrelated employers contribute. Assets of the plan are commingled and can be used to provide benefits to employees of other participating employers.
Currently, U.S. generally accepted accounting principles require employers to disclose their total contribution to multiemployer plans, but there is no requirement to describe the funding status of these plans.
Proposed Disclosures
The exposure draft proposes disclosures that the FASB believes would help users of financial statements better assess the potential risks faced by employers participating in multiemployer plans.
The exposure draft proposes the following disclosures, among others:
- A description of the plan(s) in which the employer is involved
- The employer’s contractual commitments to the plans
- The expected impact of participating in the plans on the employer’s future cash flows (including the potential impact of plan withdrawal obligations)
- Total assets and accumulated benefit obligation of the plan
- Quantitative information about the employer’s participation in the plan, for example, the number of its employees as a percentage of total plan participants
- A description of the contractual arrangements between the employer and the plan, including the length of the arrangement, the contribution rates agreed to, and any minimum funding arrangements
- Expected contributions for the next annual period
- Known trends in future contributions
- The amount that would be required to be paid upon withdrawal from the plan
- A narrative description of any funding improvement plans adopted by the plan, including the expected effects on the employer
Timeline
At its Nov. 10, 2010 meeting, the FASB agreed to extend for one year the proposed effective date of any updates that might be made in the accounting standards. The proposed update would have been effective for public companies for fiscal years ending after Dec. 15, 2010, and for nonpublic companies for fiscal years beginning on or after Dec. 15, 2010.
FASB says it will use the additional time to analyze and digest the more than 320 comments it received on the exposure draft. A conclusion about whether the proposal will be implemented is expected by the second quarter of 2011.
Who is Affected?
Multiemployer plans are common among, but not exclusive to, labor unions. They are typically administered by a board of trustees made up of management and labor representatives. The plan may be referred to as a “joint trust” or “union plan.”
An employer may participate in more than one multiemployer plan. Participating employers usually have a common industry bond, but for some plans the employers are in different industries. A labor union may be their only common bond.
Contact us for help in assessing the potential impact of this proposed change in accounting standards.
