FASB Meets to Unlock Pension Investment Risk Information
.gif)
The Financial Accounting Standards Board ("FASB") meets on July 16, 2008 to discuss how much investment-related information pension plans should disclose to the public. Following the "exposure" of Statement 132(R) on March 18, 2008, industry participants weigh in about the feasibility of compliance. In its 17-page summary of comment letters, FASB notes disagreement among respondents with respect to the need for asset categorization. Some suggest the use of Form 5500 as a guide to the proper delineation of asset investment risks. (As mentioned elsewhere in this blog, we take issue with the Form 5500 as a meaningful guide for economic risk assessment purposes.)
Surprising to this blogger, only one other organization (Eli Lilly) besides Pension Governance, LLC comment on the need to better understand a reporting entity's process. In our May 2, 2008 letter, we suggest that accounting rules "require plan sponsors to describe how it decided on a particular concentration, who monitors the concentrations, what triggers a breach, and what happens when a concentration is exceeded."
Regarding fair value, several companies aver that such disclosures would "provide little information to users because annual postretirement benefit cost is based on the expected return on plan assets rather than the actual return." In stark contrast, note that the U.S. Department of Labor is holding hearings today about "hard to value" assets held by ERISA plans.
More than a few respondents claim that the costs of gathering, and then analyzing, requisite information will outweigh the benefits, especially for those companies with geographically dispersed benefit plans. Others cite problems related to assets held by "multiple trustees in pooled asset accounts" whereby the "look through" process cannot be done by a "trustee with partial information, and the employer may not have the skills or proper information to do so."
A key question remains - If something like FAS 132(R) is not adopted, what do critics propose in its place? At a time when more and more plans allocate monies to complex securities and/or funds with less than full transparency, is it sufficient for fiduciaries to simply say "trust me" and assume that disclosure of investment risk is unwarranted? That may be a lot to ask of plan participants who are already nervous about their financial futures.
Editor's Notes: Click to read "Postretirement Benefit Plan Asset Disclosures - Comment Letter Summary" (FASB). Click to access comment letters submitted by various organizations (including Pension Governance, LLC) about "Employers' Disclosures about Postretirement Benefit Plan Assets."
