FASB Releases New Pension Accounting Rules for Comment
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In an effort to unlock the mystery about pension investment risk-taking (something we've discussed at length in previous posts), the Financial Accounting Standards Board recently released FASB Staff Position FAS 132r-a (Employers' Disclosures about Postretirement Benefit Plan Assets) for public comment. This author is preparing a response on behalf of Pension Governance, LLC (having also been invited to informally speak with FASB last summer about risk metrics and disclosure pitfalls). If adopted, it will combine elements of FASB Statement No. 157, Fair Value Measurements, and FAS 133/161, the latter being focused on accounting for derivative instruments.
Critics are already sharpening the proverbial knives, asserting that the proposed rule addresses the asset side only, leaving interested parties in the dark with respect to the economic impact of integrated asset-liability management strategies. Others suggest that a requirement for plan sponsors to separately disclose the fair value of each "significant" category of plan assets will be lots of work with limited benefit to financial statement users. Having worked with FAS 133 compliance (sometimes referred to as the "consultants' full employment act"), I believe that FAS 132r will encourage plan sponsors to hire outsiders to assist with fair valuation and valuation process checks. (We offer this service as do others.) For some plans, the cost of engaging an independent third party might be cost-prohibitive, putting fiduciaries in a difficult spot as to what to do instead, especially if staff members are ill-equipped to do the work on their own. On the positive side, a comprehensive review (if done properly) can aid plan sponsors by pointing out compliance and economic gaps.
Click to read the draft of the FASB proposed pension accounting rules. Public comments will be accepted until May 2, 2008.
