FASB Votes to Retain PBO, Weighs Prospective Treatment for Pension/OPEB

July 12, 2006

FEI Summary

On July 12, 2006, the Financial Accounting Standards Board (FASB or the board) began redeliberating its proposed standard, “Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans.”  (referred to as the “pension/OPEB (other postemployment benefit) standard).  FASB considered comment letters on the earlier Exposure Draft (ED), as well as feedback from the June 27 FASB roundtable. (An archived webcast of the roundtable is available here.)

At the July 12 board meeting, FASB voted:

§         To retain the two-phase approach to the project; and

§         To retain the measurement attribute defined in the ED, i.e. Projected Benefit Obligation (PBO) for pensions, and Accumulated Projected Benefit Obligation (APBO) for other postretirement benefit obligations.

However, persuaded by comment letters and feedback at the roundtable, FASB voted to make two changes to the proposed standard, versus the ED.

• First, the board voted that transition assets or obligations should be recognized as an adjustment to accumulated other comprehensive income (OCI) with subsequent amortization, rather than requiring the transition amount to be run through net periodic benefit (the earnings statement) in the year of adoption.
• Second, the board rejected the “full retrospective” transition method proposed in the ED, but was unable to reach a consensus today on whether to allow prospective application, or whether to require “pro forma disclosure of the affect on the financial statements for the year immediately preceding the year of initial application of the final standard.”

FASB Chairman Robert Herz asked the staff to seek out additional information from users and preparers on pro forma vs. prospective application, specifically:

• To ask users why they need the pro forma information and how they would use it, and if they have a preference between getting the pro forma information, even if it would require a delayed effective date, vs. allowing prospective application under the current proposed effective date of fiscal years ending on or after Dec. 15, 2006
• To ask preparers about practicability issues they may face in providing the pro forma information, particularly whether it could be provided as of the current proposed effective date of fiscal years ending on or after Dec. 15, 2006, or whether preparers believe a delayed effective date would be necessary to put that information together (including the fact that pro forma information must be audited). Potential issues regarding the ability to put together pro forma presentation of related deferred tax assets were believed to cause particular practicability issues; that will be among the feedback sought by the staff.  

 A schedule of FASB’s plan for redeliberating various other aspects of the proposal, including reaffirming the Dec. 15, 2006 effective date for public companies, deciding whether a deferred effective date is warranted for nonpublic companies, discussion of the “measurement date” and other issues, is included on the last page of today’s FASB board handout. 

Related links:

• Listen to the archived webcast of the July 12 FASB board meeting.
• See the FASB staff’s summary of comment letters received on the pension/opeb ED.
• View the FASB’s project summary for pension/opeb.
• Read FEI’s comment letter filed by FEI’s Committee on Corporate Reporting (CCR) and Committee on Benefits Finance (CBF)

Prepared July 12, 2006 by Edith Orenstein (eorenstein@FinancialExecutives.org), Director, Technical Policy Analysis, Financial Executives International (FEI) based on listening to the webcast of the FASB meeting. This summary does not represent FEI opinion, unless specifically noted above.