Pension and Other Post-Retirement Benefits Disclosures for Closely-Held Companies under SFAS 132
Jordan, Charles E., Clark, Stanley J., The National Public Accountant
In February 1998, the FASB changed the disclosure rules for pensions and other post-retirement benefits when it issued Statement of Financial Accounting Standards (SFAS) 132, Employers' Disclosures about Pensions and Other Post-retirement Benefits. Through SFAS 132, the FASB seeks to standardize the disclosure requirements between pensions and other post-retirement benefits, which previously were covered under two separate standards. Other goals embodied in SFAS 132 include reducing the preparation costs of the disclosures, eliminating disclosures that do not provide useful information to decision makers, and improving the overall usefulness of the disclosures.
To help accomplish these goals, SFAS 132 stipulates different disclosure rules for public and nonpublic (i.e., closely-held) companies. Because financial statement users of closely-held companies do not require all the in-depth disclosures needed by financial statement users of publicly traded companies, SFAS 132 allows accountants to provide reduced disclosures for closely-held companies. This article explains and demonstrates the disclosure requirements for closely-held companies.
SFAS 132 supersedes the disclosures required by SFAS 87, Employers' Accounting for Pensions, and SFAS 106, Employers' Accounting for Post-retirement Benefits, but does not alter any of the measurement and recognition criteria established in these earlier standards. Even though the new standard sets forth a disclosure set for publicly traded companies and a separate, reduced disclosure set for closely-held companies, these smaller companies may provide the more detailed disclosures of publicly traded companies if they so desire. However, it is unlikely that many will choose to do so.
SFAS 132 addresses primarily defined benefit plans, and it eliminates several previously required disclosures. For example, for all companies, gone is the requirement to disclose general descriptive information about the pension or other post-retirement benefit plans. Thus, information about the employee groups covered, type of benefit formula, funding policy, and types of plan assets held no longer requires disclosure. SFAS 132 does not prohibit a company from making this disclosure; the disclosure can still be made if management and the accountant consider the information useful for decision makers.
For closely-held companies, SFAS 132 eliminates two additional disclosures. First, companies no longer need to disclose the components of the net periodic pension (or other post-retirement benefits) expense. In other words, service cost, interest cost, actual return on plan assets, and amortization of prior service costs will no longer be presented as separate components of the net periodic expense. Second, a reconciliation of the funded status of the plan (i.e., the difference between the projected benefit obligation and the fair value of the plan assets) with the prepaid asset or accrued liability reported in the balance sheet is no longer required.
Required Disclosures for Closely-Held Companies
The FASB suggests that disclosures be presented in combined formats for pension and other post-retirement benefits (i.e., disclosures for both types of benefits should be in the same footnote with any schedules for pensions and other post-retirement benefits shown side by side). Some disclosures required by SFAS 132 can best be presented in schedules while other information lends itself more readily to narrative disclosures. The following required disclosures are more easily presented in schedule format:
1. The fair value of plan assets, benefit obligation, and funded status of the plan. For pension plans, the benefit obligation is the projected benefit obligation, which is the present value of all future benefits earned by employees prior to the current date. For other post-retirement plans, the benefit obligation is the accumulated benefit obligation, which is the present value of the future benefits earned by employees vested prior to the current date. …