Final Multi-Employer Pension Plan Disclosures Not as Rigid as Proposed
Construction companies can breathe a little easier: the Financial Accounting Standards Board (FASB) released its final multi-employer pension plan disclosure rules, and they are much less onerous than
originally conceived.
FASB had sought to bolster employers’ disclosure of financial obligations to multi-employer pension plans, drawing concern from participating construction businesses, unions, and contractors. Though the revised accounting standard, approved July 27, 2011, substantially increases employers’ financial statement requirements, it relieves them of a significant administrative burden proposed in the exposure draft:
- Disclosure of withdrawal liability for all plans in which they participate
- Or, alternatively, submission of a "point-in-time" estimate of obligations with respect to the underfunded status of individual plans
Construction employers objected to these requirements and the related arduous calculations—and noted that the numbers were susceptible to misinterpretation. They were relieved to see them ultimately omitted from the rules. “The final framework seems to have struck a reasonable balance between the construction industry’s concerns and FASB’s desire for additional disclosures,” says David English, a LarsonAllen construction manager.
Newly required disclosures include:
- Basic information about all plans in which the employer participates, including the plan’s legal name and the collective-bargaining arrangement’s expiration date for each plan to which the employer contributes.
- Information about the plan’s most recent certified zone status (a measurement of the financial health of a plan) as required by the Pension Protection Act of 2006, if available, and whether a funding improvement or rehabilitation plan has been implemented or is pending. If the plan’s zone status is not available, an employer will disclose the plan’s funded ratio: less than 65 percent, between 65 and 80 percent, or greater than 80 percent.
- Information about the employer’s contributions to each individual material plan (or aggregate contributions to all non-material plans) and indication of which, if any, are subject to a funding improvement plan. The employer will also note whether its contributions represent more than five percent of total contributions to any plan.
Although the standard increases financial statement disclosures, the required information is readily available from previously filed plan reports, and contributing employers will notice a decrease in the administrative effort necessary to comply. However, given the concentration of contractors participating in collectively bargained pension funds (often with numerous plans), organizations will likely need to allocate additional resources to fulfill their reporting duties.
The rules are expected to apply to public entities in fiscal years ending after December 15, 2011, and to private entities in fiscal years ending after December 15, 2012.
Howard Gold, a LarsonAllen construction audit manager, says, “The new disclosures will enhance awareness of an employer's risks and commitments arising from its participation in a multiemployer plan. Credit underwriters, sureties, and other users of a company's financial statements will have additional information to measure their risk exposure and determine the appropriate premium to insure that risk."
How we can help
Though the new standard is not expected to affect private companies until 2012, it is not too early to accumulate the required information, assess the perception these disclosures may have on users of your financial statements, and prepare for the obligations. We can assist in each of these activities, help you comply with the new standard, and analyze potential financial statement interpretations.
David English, Construction, Manager
denglish@larsonallen.com or 847-597-1842
Howard Gold, Construction, Manager
hgold@larsonallen.com or 847-597-1811
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