The Financial Accounting Standards Board will add a new project to its agenda and reconsider its accounting guidance for pensions and other retirement benefits.

The board's past guidance on the subject was outlined in statement No. 87, "Employers' Accounting for Pensions," and statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." FASB will seek to improve transparency by requiring that the funded or unfunded status of defined benefit and other postretirement benefit plans, measured as the difference between the fair value of plan assets and the current measure of the benefit obligation incurred for past employee service, be recognized in the balance sheet.

The first phase of the project should be finalized by the end of 2006 and will address the fact that under current accounting standards, important information about the financial status of a company's plan is reported in the footnotes, but not in the basic financial statements.

The second broader phase would comprehensively address remaining issues, including:

  • How best to recognize and display in earnings and other comprehensive income, the various elements that affect the cost of providing postretirement benefits;
  • How best to measure the obligation, in particular the obligations under plans with lump-sum settlement options;
  • Whether more or different guidance should be provided regarding measurement assumptions; and,
  • Whether postretirement benefit trusts should be consolidated by the plan sponsor.

The board's objective in undertaking the project is to improve the reporting of pensions and other postretirement benefit plans in financial statements by making information more useful and transparent for investors, creditors, employees, retirees, and other users. In making its decision to revisit the issues, the board considered requests by various constituents, including members of the Financial Accounting Standards Advisory Council, the FASB's User Advisory Council, and the U.S. Securities and Exchange Commission.In conducting the project, the FASB will seek the views of parties currently involved in other, independent reviews of the pension system including the Department of Labor and the Pension Benefit Guaranty Corp. FASB also expects to work with the International Accounting Standards Board and other standards setters.

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