FAS 158: Defined Benefit Pension and Other Postretirement Plans
September 29, 2006
On Sept. 29, 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (FAS 158).
Summary of FAS 158
FAS 158 -- which amends FAS 87, 88, 106, and 132(R) – requires employers with pension/OPEB (other post-employment benefits) plans to:
- Recognize the funded status of a benefit plan — measured as the difference between plan assets at fair value (with limited exceptions) and the benefit obligation — in its statement of financial position. For a pension plan, the benefit obligation is the projected benefit obligation (PBO); for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation (APBO).
- Recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to FASB Statement No. 87, Employers’ Accounting for Pensions, or No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. Amounts recognized in accumulated other comprehensive income, including the gains or losses, prior service costs or credits, and the transition asset or obligation remaining from the initial application of Statements 87 and 106, are adjusted as they are subsequently recognized as components of net periodic benefit cost pursuant to the recognition and amortization provisions of those statements.
- Measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position (with limited exceptions).
- Disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation.
FAS 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 Dec. 15, 2006, for entities with publicly traded equity securities, and at the end of the fiscal year ending after June 15, 2007, for all other entities.
- 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 Dec. 15, 2008.
Further Guidance Expected in Phase II of Pension/OPEB Project
Issuance of FAS 158 completes “phase 1” of FASB’s pension/OPEB project. Phase 2, the longer term phase, will comprehensively address issues of measurement and other matters regarding accounting for pension/OPEB plans.
FEI Following Developments
FEI’s Committee on Corporate Reporting (CCR) and Committee on Benefit Finance (CBF) have been following developments with respect to the pension/OPEB standard. (The joint comment letter filed by FEI’s CCR and CBF on the earlier proposal or Exposure Draft of this standard is available here.)
FASB press release (text copied below)
FASB summary of FAS 158
Other Summaries From:
Prepared Sept. 29, 2006 by Edith Orenstein (eorenstein@FinancialExecutives.org), Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion, unless specifically noted above.