ERIC Brings Contentions Over FASB Draft

The ERISA Industry Committee (ERIC) is a non-profit association that represents the employee benefits interests of some of the nation’s largest employers.

The FASB released the draft on March 31, which outlined how companies should treat underfunded and overfunded pension plans on their balance sheets (See FASB Issues Proposed Accounting Changes for Pensions and OPEB , ). The proposal – which applies to plan sponsors with public and private companies and nongovernmental not-for-profit organizations – would require that underfunded plans be recorded as liabilities, and overfunded plans be recorded as assets.

The proposal also calls for employers to measure plan assets and obligations as of the date of their financial statements.

According to a letter from the interest group’s president Mark Ugoretz, ERIC’s disagreement with the FASB draft are as follows:

• The first phase of the implementation imposes changes on balance sheets in advance of their substantive consideration, which is part of the second phase. The first phase of the changes does not require extensive changes in calculations that are not already included in the footnotes of financial statements, but including a new category of liability in the first phase will raise questions about that liability and could cause alarm, when the composition and measurement questions have not been ironed out yet.
• Measuromg date changes that require companies to measure pension plan assets and benefit obligations at the same time as financial position are due will be too burdensome for large companies. ERIC says the current guideline for the due dates of these records should stand, which says the date should not be more than three months earlier than the employer’s financial statement release.
• Effective dates proposed by the FASB do not provide companies with enough time to implement changes, because they require a restatement of multiple past years. ERIC argues that retrieving years of results for those plans would be a too cumbersome task for large companies with large plans. Reinstating the numbers for these plans would also be an expensive undertaking.
• Transition to the new accounting rules is unnecessarily complex. ERIC does not think it is necessary to adjust any unamortized transition assets or obligations, and predicts it will cause complicated restatements, especially if settlements or curtailments occurred during the restatement period.
• Pension benefit obligations (PBOs) and accrued pension benefit obligations (APBOs) should not be considered as liabilities. The group says that PBOs build in an expectation of future pay increases, which can be – and often are – unilaterally eliminated.  

The changes have been estimated to cut 7% from total shareholder’s equity from the S&P 500, which would come to about $255 billion (See Analysis Estimates $255B FASB Rule Impact ).