The Financial accounting Standards Board recently approved a revised accounting standard that requires contributing non-governmental employers to provide more information about their financial obligations to multi-employer pension plans.

It should be noted that the amendments in Accounting Standards Update No. 2011-09 only apply to multi-employer plans that are defined-benefit plans covering the union employees for more than one employer. Defined-contribution plans, single-employer and non-union plans are not covered.

Employers generally contribute to multi-employer plans according to contractually negotiated rates and, historically, could become liable for "withdrawal liability" upon a cessation of contributions to an underfunded plan. Under the Pension Protection Act of 2006, contributing employers may also become liable for increased contributions under a "funding improvement" or "rehabilitation plan."

Under previous FASB rules, an employer's disclosure was limited to its historical contributions to the multi-employer plan in which it participates. FASB's objective in issuing the update was to give financial statement readers a more accurate picture of an employer's potential cash flow obligations, particularly concerning the possible withdrawal liability and funding improvement obligations arising in financially troubled plans.

FASB's initial draft of the guidance included a requirement to include a point-in-time estimate of an employer's withdrawal liability during the period of the financial statement. However, in public hearings, many negative comments surfaced regarding that proposal. Many of those who commented told the board that the withdrawal liability would not be an appropriate proxy for an employer's withdrawal liability or contribution obligations to the plan. Commentators also pointed out that such point-in-time estimates are difficult and time-consuming to obtain, almost always requiring cooperation from the plan.

In the final version, FASB substituted a more meaningful set of requirements, requiring disclosure of the following:

Identification of the significant multi-employer plans in which the employer participates by name and employer ID number.

The level of participation in the significant plans, including an indication of whether the employer's contributions represent more than 5 percent of total plan contributions.

An indication of which plans, if any, are subject to a funding improvement plan.

The expiration dates of any collective bargaining agreements and whether such agreements require minimum contributions.

A qualitative description that helps investors understand the significance of the collective bargaining agreements, such as the portion of the employees covered.

The financial health of the plan, including the most recent certified funded "zone" status of the plan. If the "zone status" is not available, an employer will be required to disclose whether the plan is less than 65 percent funded; between 65 percent and 80 percent funded; or greater than 80 percent funded.

A description of the nature and impact of any changes affecting comparability for each period in which a statement of income is presented.

It is anticipated that the financial statements about the plans will be accessible from publicly available Forms 5500. The following additional disclosure regarding plan benefits and employer financial obligations is required for plans where such information is not available:

A description of the nature of the plan benefits;

A qualitative description of the extent to which the employer could be responsible for the obligations of the plan, including benefits earned by employees during employment with another employer; and,

Other quantitative information, to the extent available, and as of the most recent date available, to help users understand the financial information about the plan, such as the total plan assets, actuarial present value of the accumulated plan benefits, and the total contributions received by the plan.

The revisions will become effective for fiscal years ending after Dec. 15, 2011, for public entities, and after Dec. 15, 2012, for non-public entities.

The guidance requiring current recognition and measurement for an employer's participation in a plan - specifically, that an employer must recognize its required contribution to the plan as a pension cost for the period and recognize a liability for any contributions due at the reporting date - remains unchanged by the amendment. In addition, the amendments do not change the requirement that an employer apply the recognition, measurement and disclosure provisions for contingencies if an obligation due to withdrawal from a multi-employer plan is either probable or reasonably possible. In such a case, the employer must either accrue a liability and disclose the contingency, or disclose the contingency, as appropriate.

The amendments create greater transparency by requiring additional disclosures about an employer's participation in a multi-employer plan. The additional disclosures will increase awareness about the employer's commitments to a multi-employer plan and the potential future cash flow implications of an employer's participation in the plan.

Undoubtedly, these enhanced disclosures will provide more information to any reader of a company's statements. The question is how much the information will affect the readers of those statements, and whether those readers will perceive the additional information as a meaningful improvement.

Of course, the required disclosures are designed to, and will in fact, provide additional financial information to readers of those financial statements. A further question remains as to whether those statements will result in a meaningful change in the perceived value and creditworthiness of the affected contributing employers.


Harvey M. Katz is a partner at Fox Rothschild LLP in the law firm’s New York office. Reach him at (212) 8787976 or hkatz@

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