-- The Financial Accounting Standards Board has released a standard that, in essence, would shuttle obligations of pension and defined benefit plans to the balance sheets instead of often being submerged in footnotes.

Under previous accounting rules, the “funded status” of an employer’s postretirement benefit plan (the difference between the plan assets and obligations) was not always reported on a company’s balance sheet.

Specifically, the new standard, “Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” requires an employer to:

  • Recognize in the statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s under-funded status;
  • Measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and,
  • Recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income of a business entity and in changes in net assets of a not-for-profit organization.

Experts point out that recording deficits for pensions and other postretirement plans on the balance sheet could potentially result in a company’s equity or net worth to drop.FASB said the standard’s requirements are effective the end of the fiscal year ending after Dec. 15, 2006, for public issuers, and at the end of the fiscal year ending after June 15, 2007, for all others. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after Dec. 15, 2008.

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