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FASB officially removes withdrawal liability requirement

The Financial Accounting Standards Board (FASB) on July 27 approved a revised accounting standard for participants in multiemployer pension plans (MEPPs) but cancelled a proposal to require participating employers to disclose their withdrawal liability.

The decision not to include withdrawal liability in the new standard is a victory for construction contractors and other businesses that contribute to MEPPs. TAUC believed the withdrawal liability proposal was seriously flawed because it would have required disclosure of information that was two years out of date, not auditable and ultimately misleading to any end-user of financial statements. TAUC joined with other trade associations to form the Construction Industry FASB Coalition (CIFC) to engage in positive and constructive collaboration with FASB regarding changes to the reporting requirements, and our efforts finally paid off.

FASB also declined to require that employers provide a "point-in-time" estimate of obligations with respect to the underfunded status of individual plans.

"Many of those who commented on the FASB's proposal on multiemployer plans told the Board that the withdrawal liability would not be an appropriate proxy for an employer's proportional share of the underfunded status of the plan," FASB said in a statement. "They suggested that the employer's share of the underfunded status of the plan can only be determined through the collective bargaining process and they urged the FASB not to require a 'point-in-time' estimate of an employer's obligations with respect to underfunding."

Although withdrawal liability was nixed, many other changes were approved. The revised accounting standard will include the following disclosures:

  • The amount of employer contributions made to each significant plan and to all plans in the aggregate.
  • An indication of whether the employer's contributions represent more than five percent of total contributions to the plan.
  • An indication of which plans, if any, are subject to a funding improvement plan.
  • The expiration date(s) of collective bargaining agreement(s) and any minimum funding arrangements.
  • The most recent certified funded status of the plan, as determined by the plan's so-called "zone status," which is required by the Pension Protection Act of 2006. If the "zone status" is not available, an employer will be required to disclose whether the plan is: less than 65 percent funded; between 65 percent and 80 percent funded; greater than 80 percent funded.
  • A description of the nature and effect of any changes affecting comparability for each period in which a statement of income is presented.

FASB said it expects that the revisions will be finalized in September. For public entities, the enhanced disclosures will be required in fiscal years ending after December 15, 2011. For nonpublic entities, the enhanced disclosures will be required in fiscal years ending after December 15, 2012.

07/28/2011