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Business and Policy Areas
Business and Policy Areas

FASB Issues New Standard on Defined Benefit Pension and Other Post-Retirement Plans

September 29, 2006

On September 29, 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 158, "Employers’ Accounting for Defined Benefit Pension and Other Post-Retirement Plans."  The new standard amends Statements No. 87, 88, 106, and 132R.

Currently, the funded status of an institution’s post-retirement plans is provided in the notes to the financial statements.  The new standard requires employers to fully recognize in their financial statements the obligations associated with single-employer defined benefit pension, retiree healthcare, and other post-retirement plans.  Thus, the new accounting and financial reporting guidance will have a financial statement impact on most independent institutions. 

Under past and now superseded accounting standards, the funded status of an employer’s post-retirement benefit plan (i.e., the difference between the plan assets and obligations) was not always completely reported in the balance sheet. Further, the previous standards only required an employer to disclose the complete funded status of its plans in the notes to the financial statements.  However, the new SFAS No. 158 requires the following:

  • Recognition in the statement of financial position of an asset for a plan’s overfunded status or a liability for a plan’s underfunded status.
  • Measurement of 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).
  • Recognition of changes in the funded status of a defined benefit post-retirement plan in the year in which the changes occur. Such changes will be reported as changes in net assets of an independent (not-for-profit) higher education institution.

Statement No. 158 applies to plan sponsors that are public and private companies and nongovernmental not-for-profit organizations. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after June 15, 2007, for independent institutions. 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 December 15, 2008 (FY 2008).

The issuance of Statement No. 158 completes the first phase of the board’s comprehensive project to improve the accounting and reporting for defined benefit pension and other post-retirement plans. A second, broader phase of this project will comprehensively address remaining issues. The board expects to collaborate with the International Accounting Standards Board on that phase.  The new standard is available on the FASB Web site.

Staff Resource: Sue Menditto, director, accounting policy