Though there are fewer mandated disclosures than originally proposed, a considerable amount of additional information will still need to be obtained in order to satisfy the new requirements.
Responding to concerns regarding the poor funding levels of many defined benefit multiemployer pension and other postretirement benefit plans -- as well as the lack of information required to be provided by employers in financial filings -- both the Financial Accounting Standards Board and the International Accounting Standards Board have significantly revised the disclosure requirements for participating employers.
A multiemployer plan is a pension or other postretirement benefit plan in which two or more unrelated employers contribute and the assets of the plan are commingled and can be used to provide benefits to employees of the other participating employers. These plans are usually, but not always, pursuant to a collective bargaining agreement.
The accounting treatment differs between the U.S. and international rules. Under U.S. GAAP, an employer accounts for its participation in a defined benefit multiemployer plan by recognizing expense when contributions to the plan are required to be made, without any accrual of future contributions or consideration of the funded status of the plan. If withdrawal from the plan would give rise to a liability and the withdrawal is probable, the liability should be accrued. If withdrawal is reasonably possible, disclosure of the possible withdrawal liability should be made.
Under International Financial Reporting Standards, an employer participating in a defined benefit multiemployer plan should use defined benefit accounting for its share of the plan, unless the information necessary to do so is not available.
As long as the possibility of the employer's withdrawing from the plan is neither probable nor reasonably possible, disclosure has been limited to the actual contribution for the year and a description of the nature and effect of any changes affecting comparability from prior years. Consequently, financial statement users have been concerned that the potential risks and future cash flow implications associated with participating in the plans have not been transparent in the financial statements.
In connection with its other amendments to the accounting for defined benefit plans, the IASB amended its required disclosures for multiemployer plans to include a quantitative or qualitative description of the requirements upon withdrawal from the plan, expected contributions for the next annual period, and the employer's level of participation in the plan. These new disclosures, along with the other amendments, will be required for fiscal years beginning on Jan. 1, 2013, with early adoption permitted.
FASB also considered the risks for employers participating in these plans and expects to issue amended disclosure requirements in the coming weeks. Based on a great deal of feedback from financial statement preparers and plan administrators, FASB decided to not require some of the disclosures proposed in its September 2010 Exposure Draft. These include the estimated withdrawal liability, the total assets and the accumulated benefit obligation of the plan and the employer's contributions to a plan as a percentage of total contributions.
Instead, FASB focused on three main objectives for the disclosure -- disclosure of the overall health of the plan, the level of the employer's participation in the plan and the employer's contributions to the plan -- and will require this information for individually material plans.
For U.S. plans where a Form 5500 is filed, employers will disclose the following for each individually material plan:
Plan legal name and Employer Identification Number;
"Zone status" as required by the Pension Protection Act of 2006 for each year that a balance sheet is presented;
Contributions to the plan for each year that an income statement is presented;
Whether the employer's contributions represent more than 5 percent of total contribution to the plan;
Expiration dates of collective bargaining agreements and any minimum funding requirements; and
Whether the plan is subject to a funding improvement plan.
Providing this information will allow users of the financial statements to determine which plans may present greater risk, as well as the plans where the employer's participation is more substantial. Users will then have the necessary information to obtain Form 5500 and gather any additional information.
Similar information should be provided for non-U.S. plans, although obtaining some of this information for non-U.S. plans may be challenging. To the extent information is not available, employers will need to provide alternative information to meet the overall objectives.
If that information is also not available, employers may provide other information about the plan. Employers may also face other challenges for U.S. or non-U.S. plans, including obtaining the required information in a timely fashion. The information is not likely to be available as of the financial statement date, so employers will need to use the most recent information available (which may, for example, relate to the prior fiscal year).
Employers will also have to disclose the total contributions made to all other multiemployer plans in the aggregate and the total contributions to all plans in the aggregate.
The new disclosures will apply to multiemployer plans that provide pension benefits, and will not be applicable for other postretirement benefit plans (such as retiree medical). This is because financial statement users were primarily concerned with the lack of transparency in disclosures for multiemployer pension, and because it would be operationally challenging to provide information for other post-retirement benefits because those plans often combine benefits for active employees and retirees.
A subsidiary participating in its parent's single employer plan or a non-profit agency participating in its national organization's plan will continue to apply multiemployer accounting, as required under current guidance. However, these entities will not be required to provide the new disclosures. Instead, FASB decided to maintain the requirement to disclose the amount of contributions to the plan and to include a requirement to disclose the name of the plan.
In the coming weeks, FASB is expected to issue its final statement on the new required disclosures for employers participating in a multiemployer plan. Public entities will be required to adopt these new disclosures in fiscal years ending after Dec. 15, 2011 [meaning that for most calendar year companies, adoption will be required this year]. Non-public entities will have a one year deferral; early adoption will be permitted.
Although there are fewer required disclosures than originally proposed, there will still be a considerable amount of new information to be obtained. Public companies should consider beginning their assessment of individually material plans and gathering the required information. The disclosures will also need to be applied retrospectively to all annual periods presented, which will require employers to obtain certain comparative information from previous years.