PROJECT PAGES

POSTEMPLOYMENT BENEFIT ACCOUNTING AND FINANCIAL REPORTING

Project Description: In this project, the Board will consider the possibility of improvements to the existing standards of accounting and financial reporting for pension benefits by state and local governmental employers and by the trustees, administrators, or sponsors of pension plans. One objective of this phase of the project is to improve accountability and the transparency of financial reporting, in regard to the financial effects of employers’ commitments and actions related to pension benefits. This objective would include improving the information provided to help financial report users assess the degree to which interperiod equity has been achieved. The other objective of this phase of the project is to improve the usefulness of information for decisions or judgments of relevance to the various users of the general-purpose external financial reports of governmental employers and pension plans.

News and Information

Status: Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68, Accounting and Financial Reporting for Pensions, were approved in June 2012.
 

• Project Plan
• Minutes for Deliberations
• Field Test
• Relevant Links
• Project staff:
  • Michelle Czerkawski
    
  • Scott Reeser
    
    

Postemployment Benefit Accounting and Financial Reporting—Project Plan

Background: This project follows a research project approved by the Board in January 2006 to gather information regarding how effective the standards established for pension accounting and financial reporting—Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and Statement No. 27, Accounting for Pensions by State and Local Governmental Employers—have been in improving accountability and providing decision-useful information. The research project was conducted, in part, as a result of the Board's commitment to periodically reexamine its standards. The research project provided an opportunity to review how state and local governments and pension plans applied the requirements of Statements 25 and 27 and how financial reporting reflected the transactions and events affecting pensions from the issuance of those standards in 1996.

Conceptual Developments. Relevant conceptual points of reference not available when Statements 25 and 27 were developed include:

• The definition of a liability in Concepts Statement No. 4, Elements of Financial Statements
   
• The definition of communication methods—including recognition/display in basic financial statements, notes to basic financial statements, and required supplementary information (RSI)—in Concepts Statement No. 3, Communication Methods in General Purpose External Financial Statements That Contain Basic Financial Statements. 

Other Pension Accounting Standards. Other pension standards identified by the project staff as part of the research include: ¹

• Financial Accounting Standards Board (FASB)—Statement No. 35, Accounting and Reporting by Defined Benefit Pension Plans, and Statement No. 87, Employers' Accounting for Pensions, as amended most recently by Statement No. 158, Employers' Accounting for Defined Benefit Pension Plans and Other Postretirement Plans
   
• Federal Accounting Standards Advisory Board—Statement of Federal Financial Accounting Standards 5, Accounting for Liabilities of the Federal Government
   
• International Public Sector Accounting Standards Board—International Public Sector Standard 25, Employee Benefits
   
• International Accounting Standards Board—International Accounting Standard 19, Employee Benefits
   
• Accounting Standards Board (ASB) of the United Kingdom—Financial Reporting Standard 17, Retirement Benefits
   
• Public Sector Accounting Board of the Canadian Institute of Chartered Accountants—Public Sector Accounting Handbook Section PS 3250, Retirement Benefits
   
• Australian Accounting Standards Board (AASB)—AASB 119, Employee Benefits.

The following other standards setters also were identified as working on pension projects at the time of the research project:

• The FASB is engaged in a multi-phase pension project that produced FASB Statement 158 as the culmination of its first phase. Statement 158 requires employers in the United States private sector to recognize their accrued benefit obligation (currently measured as required by FASB Statement 87) on the balance sheet. In addition, the FASB is addressing other measurement, recognition, display, and disclosure issues. The FASB and the IASB also are engaged in a process of converging their standards.
   
• As part of the Pro-active Accounting Activities in Europe initiative, the European Financial Reporting Advisory Group issued in January 2008 a Discussion Paper, The Financial Reporting of Pensions, developed under the leadership of the United Kingdom's ASB. The paper sets out views on how pension arrangements might best be reported and suggests broad principles that might be applied to all pension plans, including defined benefit, defined contribution, and increasingly common hybrid arrangements.

The project has drawn upon the work of the various standards setters as furnishing useful contributions to the definition and analysis of issues and to the development of potential solutions consistent with the objectives of improving accountability and decision usefulness within the context of state and local governments, financial report users, and uses of financial information in the United States' government environment.

Other Literature. Prominent in recent discussions of pension accounting issues in accounting and actuarial arenas has been a view of pensions reflecting the discipline of financial economics. Actuaries and financial analysts of that school of thought have expressed a distinctive analysis of pension benefits, the relationships among key parties having an interest in pension benefits, and the effects of accounting and financial reporting standards on decision making and the investment of plan assets. This view also has stimulated spirited response within the United States from some public pension actuaries that favor the traditional actuarial funding model.

State commissions, research groups, and consultants in various parts of the country have issued a number of studies of pension funding, governance, and other pension issues or problems that also may be useful as reference material for this project. The findings and recommendations of studies of this nature focus on particular facts and circumstances.

Accounting and Financial Reporting Issues: The scope of this phase of the project includes issues (a) raised by participants in the pension accounting research project, (b) identified in literature on the subject, or (c) identified through the staff's review of transactions and other events affecting pensions, the application of existing standards by pension plans and employers, and the way that annual financial reports have reflected the effects of events in years since the effective dates of Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 27, Accounting for Pensions by State and Local Governmental Employers. It also includes consideration of relevant conceptual developments by the Board subsequent to the issuance of Statements 25 and 27, in Concepts Statements 3 and 4. The scope of the project also includes consideration of more specific issues and potential improvements related to measurement, recognition, and disclosure of information about pensions by employers and by pension plans.

The project also includes consideration of potential issues related to small governments, including issues related to the cost of implementation, and issues related to special-purpose entities, including comparability of accounting and financial reporting among governmental entities versus comparability among publicly and privately owned entities engaged in the same types of economic activity.

Project History: As noted above, the Board added a project on pension accounting and reporting to the research agenda in January 2006. The research included reviews by project staff of pension plans' annual financial reports and of literature regarding pension accounting and reporting issues as well as surveys of pension plans, users of financial reports, and actuaries. In addition, in the fall of 2007, the staff conducted five meetings in which questions were posed for discussion among the participants in regard to pension accounting and financial reporting issues. These included a meeting of a project advisory committee of persons knowledgeable in the field of pensions—including preparers of employer and plan financial statements, auditors, actuaries, and users such as municipal bond analysts, legislative and oversight staff, and taxpayer groups—and four regional roundtables (in New York City, San Francisco, Chicago, and Austin) with similarly knowledgeable and diverse groups of participants. A research report that encompasses the research efforts and findings through the end of the research phase of the project was prepared and was presented to the Board in April 2008.

The project was added to the current agenda in April 2008. An educational session was held in July 2008 to provide an opportunity for the Board and the project staff to obtain additional information and views from proponents of two distinctly different approaches to the measurement of pension costs and obligations and expenses by employers—a financial-economics, or fair-value, approach and an actuarial-funding, or asset-accumulation, approach. In addition, the GASAC discussed the direction of the project at its July 2008 meeting. In August 2008, the Board discussed the general content and structure of an Invitation to Comment on project issues.

In September 2008, the Board tentatively agreed on the questions to be presented in a single Invitation to Comment that would address both plan and employer accounting and financial reporting issues. At that time, the Board also tentatively agreed that the project staff should pursue development of a plain-language document to supplement the Invitation to Comment. In the period from October 2008 to January 2009, the Board reviewed drafts of the proposed chapters of the Invitation to Comment.

During the March 2009 meeting, the Board reviewed and provided comments on Preballot Drafts of the Invitation to Comment and a Plain-Language Supplement designed for financial report users.

The Board reviewed Ballot Drafts of the two documents in the March 31, 2009, teleconference. At the teleconference, the Board members indicated that they did not object to the publication of these staff documents on the GASB website for comment.

The Invitation to Comment and Plain-Language Supplement were posted to the GASB's website on March 31, 2009. The comment period concluded on July 31, 2009. More than 115 written comments were received. In addition, the Board heard oral testimony from 17 presenters at two public hearings in Norwalk, Connecticut, and Washington, DC.

In October 2009, the Board reviewed and discussed the staff’s proposed plan for considering issues pertaining to employers raised in response to the Invitation to Comment, with the intention of issuing a second due process document in June 2010. The Board also tentatively decided to address issues related to postemployment benefits other than pensions (other postemployment benefits or OPEB) as a separate phase of the project.

The Board’s deliberation of project issues included consideration of comments and testimony received in response to the Invitation to Comment. In addition, on December 2, 2009, a Task Force meeting was held to hear members’ comments on issues discussed by the Board to that date, including tentative decisions by the Board, as well as additional issues presented in the Invitation to Comment. On December 3, 2009, the Board also heard comments from members of the GASAC on the same issues. A portion of the Board’s teleconference meeting on December 8, 2009, was allotted to processing of the feedback received from the Task Force and GASAC members.

In January 2010, the Board held an educational session in which actuaries provided explanations and illustrations and answered questions regarding measurements of pension obligations using various actuarial cost methods, amortization methods, discount rates, and asset-valuation methods. This session was informational only and did not include discussion of project issues.

In April, the GASAC discussed tentative decisions made by the Board to that time and provided feedback to the Board and project staff with regard to those decisions.

A Preliminary Views and a Plain-Language Supplement reflecting the Board’s tentative decisions related to employer accounting for pensions were issued on June 16, 2010. The comment period concluded on September 17, 2010. The Board received 193 written responses. In addition, in October, the Board held public hearings in Dallas, San Francisco, and New York and heard testimony representing the views of 29 individuals and organizations.

During the period from July 2010 to June 2011, the Board received feedback from the GASAC and from members of its task force. In December 2010, the Board began its redeliberation of proposals put forth in the Preliminary Views, Pension Accounting and Financial Reporting by Employers. Between December 2010 and the end of June 2011, the Board considered comments received on its Preliminary Views’ proposals, as well as other issues related to employer and plan accounting and financial reporting for pension benefits.

In June 2011, the Board approved the issuance of two Exposure Drafts for public comment—Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans.

The Exposure Drafts were accompanied by a Plain-Language Supplement, Pension Accounting and Financial Reporting, focused on the Board’s proposal related to employer accounting and financial reporting for pensions. The scope of each of the Exposure Drafts was limited to pensions that are provided through pension plans administered through qualified trusts. The comment period for the Exposure Drafts initially was scheduled to conclude on September 30, 2011. The deadline was extended to October 14, 2011.

The comment period on two Exposure Drafts, Accounting and Financial Reporting for Pensions (Employer Exposure Draft) and Financial Reporting for Pension Plans (Plan Exposure Draft), was extended and concluded on October 14, 2011. Responses were received from 645 individuals and organizations on the Employer Exposure Draft proposals, and nearly 60 responses were received on the Plan Exposure Draft. In addition, in October 2011, the Board held three public hearings at which it heard testimony representing the positions of 33 individuals or organizations. It also held three user forums at which 19 individuals representing various user constituencies provided feedback on the Exposure Draft proposals. Also in October, 18 governments provided additional feedback on the Exposure Draft proposals by completing a field test, the period for which concluded on October 14, 2011. At the November 2011 meeting, the Board reviewed summaries of the results of the field test and of major and common concerns expressed by respondents to the Exposure Drafts, and it tentatively agreed to a timetable for redeliberation of those issues.

In December 2011, the Board began its redeliberation of proposals put forth in the Exposure Drafts, Accounting and Financial Reporting for Pensions (Employer Exposure Draft) and Financial Reporting for Pension Plans (Plan Exposure Draft). As part of its redeliberations, the Board considered comments received by respondents to the Exposure Drafts, as well as other feedback, including that from the user forums, field tests, and the project task force. At the December 2011 meeting, the Board primarily discussed issues related to scope and applicability. The Board tentatively affirmed the general scope and applicability of the Exposure Drafts; however, it agreed that the final Employer Statement should clarify that the standard is intended to apply to benefits provided to volunteers. Additionally, the Board tentatively agreed that the effect on accounting for compensated absences should be clarified by amending the Codification Instructions to additionally specifically exclude contributions to a cost-sharing multiple-employer defined benefit pension plan that is within the scope of the Exposure Drafts from the measurement of a compensated absences liability.

Financial Reporting Focus

The Board tentatively affirmed that the information included in the employer’s financial reports should reflect the financial effects of the broad range of transactions and other events that impact the employer’s obligation to provide pensions—not only those associated with funding the benefits.

General Cost Concerns

The Board tentatively agreed that general cost issues, including those related to small governments, should first be evaluated in relation to specific measurement and presentation proposals of the Exposure Drafts, with a final, overall evaluation about cost-benefit made subsequent to the consideration of those individual features.

Net Pension Liability of a Single or Agent Employer

Liability recognition

The Board affirmed that the net pension liability (the portion of the obligation to employees for defined pension benefits in excess of the plan net position available for those benefits) meets the definition of a liability as defined by Concepts Statement No. 4, Elements of Financial Statements.

Measurement of the net pension liability

The Board tentatively affirmed that the measurement and recognition requirements for accounting and financial reporting of pensions should reflect both (1) the longevity of governments and of pension plans and (2) a view of the interrelationship of the individual periods of the employment exchange transaction that result in the employer’s pension obligation.

The Board tentatively affirmed the Exposure Drafts’ proposals related to the selection of assumptions, the projection of benefits, the attribution method, and the measurement of plan net position.

With respect to the discount rate proposals, the Board tentatively affirmed that the discount rate should be a single rate that produces a present value of total projected benefit payments equivalent to that obtained by discounting projected benefits payments using (1) the long-term expected rate of return on plan investments to the extent that current and expected future plan net position available for pension benefits are projected to be sufficient to make benefit payments and to continue investing using the investment strategy select for the long term and (2) a high-quality municipal bond index rate for those payments that are projected to be made beyond that point. The Board tentatively agreed to the following clarifications relative to the discount rate proposals:

• The high-quality municipal bond index rate that is used for purposes of determining the blended discount rate, if applicable, should be a yield or index rate for 20-year, tax-exempt general obligation bonds with an average rating of AA/Aa or higher (or equivalent quality on another rating scale).
   
• Projections of contributions for the purpose of determining the discount rate should incorporate the following considerations: in circumstances in which either (1) contributions are subject to statutory or contractual requirements or (2) a formal, written policy related to employer contributions exists, professional judgment should be applied to project future employer contributions. Application of such judgment should consider the employer’s most recent five-year contribution history as a key indicator of future contributions and should reflect all other known events and conditions. In the event that no statutory or legal contribution requirement or formal, written contribution policy exists, projected contributions should be limited to an average of contributions over the most recent five-year period, potentially modified based upon the consideration of subsequent events. For this purpose, the basis for the average (for example, percentage of pay contributed, or percentage of actuarially determined contributions) will be a matter of professional judgment.
   
• The final Statement should include language to indicate the possibility that the sufficiency of projected plan net position to pay projected pension benefits might be determined through methods other than projecting cash flows.
   
• For purposes of projecting future employer and employee contributions to determine the discount rate, projected contributions should be considered to offset, first, the service costs of the employees in the period and, second, service costs of earlier periods.

Recognition of the net pension liability

The Board tentatively affirmed that the net pension liability of a single or agent employer is measurable with sufficient reliability to be recognized in the employer’s financial statements.

Timing and Frequency of Measurements

The Board tentatively affirmed the Employer Exposure Draft proposals regarding the frequency of actuarial valuations performed for financial reporting purposes and agreed to modify the Employer Exposure Draft proposals regarding the timing of the measurement of the net pension liability of a single or agent employer as follows:

• A single or agent employer should be permitted to recognize a net pension liability that is measured as of a date (referred to as the measurement date) no earlier than the end of its prior fiscal year, consistently applied from period to period.
   
• A single or agent employer should determine the total pension liability component of the net pension liability at the measurement date either by (a) an actuarial valuation as of that date or (b) the use of update procedures to roll forward amounts to the measurement date from an actuarial valuation as of a date no more than 30 months (plus one day) prior to the employer’s fiscal year-end.

The Board tentatively affirmed the Employer Exposure Draft proposals related to update procedures and significant changes, if any, that occur between the actuarial valuation date and the measurement date and tentatively decided that the final Statement should include additional clarification that the effects of changes in the discount rate on the total pension liability should be considered in the evaluation of significant changes. The Board tentatively agreed that if a single or agent employer reports a net pension liability measured as of a date other than its fiscal year-end and significant changes occur between the measurement date and its fiscal year-end, the employer should disclose information about the nature of the change, and if known, an estimate of the financial impact of the change.

To the extent that the Board affirms at a subsequent meeting that measures of the net pension liability of the employer(s) should be required to be included in the financial report of a single-employer or cost-sharing multiple-employer plan (for example, disclosed), the Board tentatively affirmed the Plan Exposure Draft proposals related to the timing and frequency of the measurement of the net pension liability of the employer(s).

Measurement and Recognition of Pension Expense of a Single or Agent Employer

The Board discussed the overall approach to single and agent employer pension expense recognition as proposed in the Employer Exposure Draft and tentatively agreed to the following modifications:

• Differences between expected and actual experience with regard to economic or demographic factors (differences between expected and actual experience) and the effects of changes of assumptions about future economic and demographic factors (changes of assumptions) for all employees (both active and inactive, including retirees) should be recognized as deferred outflows of resources and deferred inflows of resources.
   
• Deferred outflows of resources and deferred inflows of resources resulting from differences between expected and actual experience and changes of assumptions should be recognized in pension expense over the average expected remaining service lives of all employees, both active and inactive, if applicable, using a systematic and rational, closed-period method.

The Board tentatively affirmed the Employer Exposure Draft proposals regarding expense recognition for changes in the net pension liability resulting from other events (for example, service cost, interest, benefit changes, and projected earnings on plan investments) and for differences between projected and actual plan investment earnings. However, the Board tentatively decided that deferred outflows of resources and deferred inflows of resources resulting from differences between projected and actual plan investment earnings should be presented on a net basis in the employer’s statement of net position.

Other Issues

Defined contribution pensions

The Board tentatively affirmed the Employer Exposure Draft proposals related to defined contribution pensions, with minor editorial changes regarding display. The Board also tentatively agreed that the final Employer Statement should include reference to the possibility that if actual contributions to a defined contribution pension plan exceed pension expense, the amount would be reported as a pension asset. The Board also tentatively affirmed the Plan Exposure Draft proposals related to the accounting and financial reporting for defined contribution benefits.

Liabilities to a defined benefit plan

The Board tentatively agreed that the final Statement should carry forward the Exposure Draft proposals regarding employers’ liabilities to a defined benefit pension plan, with the clarification that an employer would recognize pension expense for the incurrence of such a liability only to the extent that there is a net effect on the employer’s net position that results from (1) incurrence of a liability to defined benefit pension plans for employer contributions and (2) a change in the employer’s recognized net pension liability associated with the transaction.

Modified accrual recognition

The Board tentatively agreed that the final Statement should clarify that net pension liabilities are normally expected to be liquidated with expendable available resources to the extent that pension benefits have matured—that is, pension benefit payments are due and plan net position is not sufficient for payments of benefits. Additionally, the Board tentatively agreed that the final Statement should clarify that liabilities to defined benefit pension plans, as well as liabilities for defined contribution pensions, are normally expected to be liquidated with expendable available resources when amounts are due pursuant to contractual arrangements or legal requirements.

Deferred retirement option programs (DROPs)

The Board tentatively agreed that retirement begins upon election to participate in a DROP and that related guidance should be included in the final Statements. The Board tentatively decided that amounts in DROP accounts should not be recognized by the plan as a liability until the amounts are due to the employee and tentatively agreed to consider additional plan disclosure related to DROPs.

April 2012 Meeting

In April, the Board addressed issues related to cost-sharing employers, special funding situations, note disclosures and required supplementary information, plan reporting, and effective date and transition.

Postemployment Benefit Accounting and Financial Reporting—Minutes for Deliberations

Minutes of Teleconference, March 24, 2014

The Board considered the addition of a potential project to the current technical agenda. This project would consider postponing the effective date of Statement No. 68, Accounting and Financial Reporting for Pensions, for some or all governments within its scope. The Board discussed the project prospectus and feedback received from its stakeholders, including officials from governments and pension plans, auditors, actuaries, and users of financial statements, and voted unanimously not to delay the effective date of Statement 68. The requirements of Statement 68 are effective for fiscal years beginning after June 15, 2014.

Minutes of Teleconference, June 25, 2012

The Board reviewed a ballot draft of Statement No. 68, Accounting and Financial Reporting for Pensions, and continued its discussion of a ballot draft of Statement No. 67, Financial Reporting for Pension Plans. Board members provided suggestions to the project staff for clarifying changes that will be incorporated into the final Statements. During the review of the Statement 68 ballot draft, the Board agreed to modify its earlier tentative decision to require cost-sharing employers and governmental nonemployer contributing entities in special funding situations to directly calculate their net pension liabilities as a present value of projected future contributions to the pension plan. Instead, the Board agreed to require the use of a proportionate share approach (which was presented as an alternative to the direct calculation approach in the preballot draft if the direct calculation approach was not practical), with encouragement to use projected measures of contributions to determine the employer’s or entity’s proportionate share of the total net pension liability (asset) for benefits provided through the pension plan.

For purposes of note disclosures and required supplementary information schedules that do not directly present information about the net pension liability, the Board agreed that the final Statement should specify that measures of contributions should include actual contributions, as well as contributions that are recognized as current payables. The Board also agreed to modifications to prior decisions that would have required employers that have a special funding situation to disclose certain information about measures determined before the support of nonemployer contributing entities.

The Board also agreed that schedules presented by an employer about contributions relative to an actuarially determined contribution requirement or to a statutorily established contribution requirement should not include information about contribution rates for, or amounts from, nonemployer contributing entities in a special funding situation.

The Board agreed to require single, agent, and cost-sharing employers and governmental nonemployer contributing entities that recognize a substantial portion of the collective net pension liability to disclose (1) the major components of the deferred outflows of resources and deferred inflows of resources reported at its fiscal year-end and (2) information about the recognition of those balances in pension expense over the next five years, individually, and in subsequent years in the aggregate. The Board also agreed that the project staff should make changes throughout the document for consistency of presentation and language and that changes to the nonauthoritative illustrations should be made to most clearly reflect the requirements included in the final Statement.

With regard to a ballot draft of Statement 67, the Board discussed additional material prepared by the project staff at the request of the Board at its June 18, 2012 meeting for inclusion in the Basis for Conclusions of the Statement and agreed to its inclusion in the final Statement. It also agreed (1) to include in the final Statement language to clarify that net pension liabilities are liabilities of the employers and certain nonemployer contributing entities and (2) to exclude from the final Statement material that was included in the Codification Instructions in the ballot draft that would have amended Statement No. 44, The Statistical Section, paragraph 39.
With the modifications agreed to by the Board, the Board members unanimously approved the issuance of both Statements.

Minutes of Teleconference, June 18, 2012

The Board reviewed a ballot draft of Statement No. 67, Financial Reporting for Pension Plans, and provided suggestions to the project staff for clarifying changes to be incorporated into the final Statement. The Board decided to wait and to vote on issuance of the draft as a final Statement following review and discussion of a ballot draft of Statement No. 68, Accounting and Financial Reporting for Pensions, at its teleconference meeting on June 25, 2012.

Minutes of Meetings, May 30 – June 1, 2012

The Board considered issues related to transition provisions, the money-weighted rate of return, and field test participant feedback on cost impact of significant tentative changes to the proposals in the Exposure Drafts, Accounting and Financial Reporting for Pensions (Employer Exposure Draft) and Financial Reporting for Pension Plans (Plan Exposure Draft). In addition, the Board reviewed the preballot drafts of both of the final Statements.

Issue 1: Transition Provisions (Employer Exposure Draft)

The Board discussed situations in which some employers might report measures of pension-related information determined in conformity with Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, while the related plan will be required to present information measured under the proposed new Statement. The Board considered whether the final Statement for employers should include an accommodation to allow employers that continue to report using the current pension requirements to use measurements from an actuarial valuation not more than 36 months from the beginning of their fiscal year for biennial calculations. The Board tentatively agreed that this accommodation should not be included and that the final Statement should continue to require employers to use measurements from an actuarial valuation no greater than 24 months from the beginning of their fiscal year.

Issue 2: Money-Weighted Rate of Return (Plan Exposure Draft)

The Board considered whether the final Plan Statement should include additional guidance about the calculation of the money-weighted rates of return that tentatively would be required to be presented in notes and required supplementary information in a defined benefit pension plan’s financial report. The Board tentatively agreed that the discussion of the money-weighted rate of return should be modified to specify that it should be calculated as the internal rate of return on plan investments. In addition, the Board tentatively agreed that the cash flows needed to calculate the money-weighted rate of return should be measured on an accrual basis at least monthly (with more frequent periods encouraged). The Board also tentatively agreed that the final standard should indicate that the measurement of investment expense includes investment management and custodial fees and all other significant investment-related costs.

Issue 3: Field Test Participant Feedback on Cost Impact of Significant Tentative Changes to the Proposals in the Exposure Drafts

As a follow up to its January 2012 meeting, the Board considered comments received from field test participants who provided feedback on a summary of significant tentative changes that the Board has made to the proposals in the Exposure Drafts to help assess whether the Board’s tentative changes would address specific cost concerns that the respondents expressed during the field test. Based on this analysis and other forms of information provided during the Board’s due process, including comment letters, public hearing testimony, and user forum feedback, the Board again considered the expected benefits of the proposals for accounting and financial reporting for pensions and accounting and financial reporting for pension plans, as tentatively modified for its deliberations of comments received in response to the Exposure Drafts. The Board also considered the anticipated costs to preparers and users of employer and plan financial statements of applying the revised requirements. After considering these issues, the Board decided to move forward with review of the preballot drafts.

Preballot Drafts

The Board discussed preballot drafts of the final Employer and Plan Statements and provided suggestions to the project staff for clarifying changes that will be incorporated into the ballot drafts. During this review, the Board tentatively agreed to eliminate proposed requirements for single and agent employers to disclose details of the components of pension expense and details of changes in pension-related deferred outflows of resources and deferred inflows of resources balances. In addition, the Board tentatively agreed that, if an employer’s contributions are not actuarially determined but statutorily or contractually determined, the employer should present a 10-year schedule in RSI that compares, for each fiscal year, the statutorily determined employer contribution and the amount of employer contributions made in relation to the statutorily determined employer contribution, and present related ratios.

Minutes of Teleconference, May 7, 2012

The Board continued its deliberations of issues raised by respondents to the Exposure Drafts, Accounting and Financial Reporting for Pensions (Employer Exposure Draft) and Financial Reporting for Pension Plans (Plan Exposure Draft). Specifically, the Board considered issues related to (1) the net pension liability measurement date; (2) note disclosures and required supplementary information (RSI) for cost-sharing employers, governmental nonemployer contributing entities, and trusts used to administer cost-sharing pension plans; (3) allocation of employer pension liabilities (and related measures) both to funds and to activities; (4) classification of a primary government and its component unit(s) as a single employer when pensions are provided through the same single-employer or agent pension plan and related accounting and financial reporting guidance; and (5) business-type activities.

Issue 1: Additional Issues related to the Net Pension Liability Measurement Date

Accounting for Employer Contributions Not Reported in the Net Pension Liability

As a follow-up to its discussions in March and April, the Board considered circumstances in which the employer reports a net pension liability as of a measurement date that does not coincide with the employer’s fiscal year-end when there would be a difference between (1) the actual cash contributions (or payables) reported by the employer for its fiscal year and (2) the change in the net pension liability resulting from the effect on plan net position of amounts recognized by the plan as employer contributions. With regard to this circumstance, the Board tentatively agreed that the difference between contributions reported in the change in the net pension liability and contributions/payables to the pension plan reported in the employer’s financial reporting period should be reported as a deferred outflow of resources in the period of the difference, with the amount recognized as a reduction of the net pension liability in the next financial reporting period to the extent that contributions are recognized in plan net position.

Measurement Date of Information about Contributions in Notes or RSI Schedules of Single and Agent Employers

At its April 2012 meeting, the Board discussed the issue of the timing of the measurement of information presented in single and agent employer notes and schedules of RSI. After reviewing those decisions, the Board considered whether information about contributions presented in the notes to the financial statements or in the RSI schedules should explain the contributions that are reported in the schedule of changes of the net pension liability (and, hence, be focused on the measurement period of the net pension liability), the contributions that are reported for the financial reporting period of the employer, or both. With regard to the amount of actual contributions made during the financial reporting period, the Board tentatively agreed that employers should be required to disclose the actual contributions made during the financial reporting period, if the measurement period for the net pension liability and the financial reporting period are different. With regard to the RSI schedule of employer contributions, the Board tentatively agreed that it should present information about the employer’s contributions over its fiscal years. In addition, the Board tentatively agreed that information about actuarial methods and assumptions used in establishing the actuarially determined employer contribution, if applicable, should be required to be presented as they relate to the fiscal year amounts in the notes to RSI. With regard to required employer contribution rate(s), the Board tentatively agreed that this information should be required to be presented either as a dollar amount or a percentage as it relates to the financial reporting period in the notes to the financial statements. Also, the Board tentatively agreed that an employer should be required to disclose in the notes the required contribution rates of employees related to the financial reporting period and information identifying which entity has the authority to establish or amend those contribution requirements.

Timing of the Determination of a Cost-Sharing Employer’s Proportion

In relation to previous tentative decisions with regard to the method that is used to establish a cost-sharing employer’s proportion and the timing provisions relative to the measurement date of the net pension liability, the Board considered whether the timing of the determination of the cost-sharing employer’s proportion might need additional clarification in the final Statement. The Board concluded that guidance should be provided but did not reach a tentative decision on the specific requirement. This issue will be discussed again as part of the review of the preballot of the final standard.

Issue 2: Note Disclosures and Required Supplementary Information for Cost-Sharing Employers, Governmental Nonemployer Contributing Entities, and Trusts Used to Administer Cost-Sharing Pension Plans

Note Disclosures for Cost-Sharing Employers

The Board considered feedback received from respondents to the Exposure Drafts regarding note disclosure and RSI issues that are unique to cost-sharing employers, governmental nonemployer contributing entities, and trusts used to administer cost-sharing pension plans. With regard to a description of the classes of employees covered and the number of employees covered by the benefit terms, the Board tentatively agreed that cost-sharing employers should be required to disclose a description of the classes of employees covered (for example, general employees and public safety employees) but that the proposal in paragraph 65c of the Exposure Draft regarding the number of employees covered by the benefit terms, presented separately by employment status, should not be included in the final Statement. With regard to what level of information should be disclosed, the Board tentatively agreed that for each plan in which it participates, a cost-sharing employer should be required to disclose the overall proportions of the collective net pension liability, the collective pension expense, the collective deferred outflows of resources, and the collective deferred inflows of resources that are recognized by the employer. In addition, the Board tentatively agreed to carry forward the disclosures for information about the financial effects of measurements related to individual employers with a modification to permit those amounts disclosed to be reported on a net basis in each period. The Board also tentatively agreed that the final Employer Statement should retain the proposed note disclosure requirements for cost-sharing employers, with modifications tentatively agreed to by the Board with regard to requirements that would be the same for cost-sharing employers as for single and agent employers and for the issues mentioned above.

RSI for Employers in Cost-Sharing Defined Benefit Plans

The Board discussed respondent comments received about the Employer Exposure Draft proposals for schedules of RSI for employers in cost-sharing defined benefit plans and considered at which level the various RSI schedules should be presented. The Board tentatively agreed that the final Employer Statement should not include a requirement for cost-sharing employers to present a schedule of changes in the net pension liability. The Board also tentatively agreed that the final Employer Statement should require cost-sharing employers to present a schedule of pension liability ratios only at the individual level as of the net pension liability measurement date. It tentatively was concluded that the schedule would present (1) the employer’s overall proportion (percentage) of the collective net pension liability, (2) the employer’s share (amount) of the collective net pension liability, (3) a ratio of trust net position to the total pension liability, (4) the employer’s covered-employee payroll, and (5) the employer’s share of the collective net pension liability as a percentage of the employer’s covered-employee payroll. In addition, the Board tentatively agreed to eliminate the proposed requirements for presentation of a schedule of employer contributions both at the collective level and at the individual level.

RSI for Governmental Nonemployer Contributing Entities

The Board considered respondent comments received about RSI for governmental nonemployer contributing entities (GNCEs). The Board tentatively agreed that the final Employer Statement should retain the note disclosure and RSI requirements for GNCEs recognizing a substantial proportion of a net pension liability, with modifications to conform with tentative decisions made for cost-sharing employer notes and RSI requirements. The Board also tentatively agreed that the final Employer Statement should retain the note disclosure and RSI requirements for GNCEs recognizing a less-than-substantial proportion of a net pension liability. In addition, the Board tentatively agreed that the final Employer Statement should require GNCEs that have a conditional special funding situation for defined contribution benefits disclose the amount of the liability outstanding at the end of the period, if any, and the name of the plan to which the GNCE contributes.

Note Disclosures and RSI for Trusts Used to Administer Cost-Sharing Defined Benefit Pension Plans

The Board considered respondent comments specific to trusts used to administer cost-sharing pension plans and tentatively agreed that, for cost-sharing pension plans, the final Statement for trusts used to administer pension plans should retain the requirements proposed in paragraphs 30–32 and 34 of the Plan Exposure Draft, with modifications to reflect tentative decisions of the Board at its April meeting.

Issue 3: Allocation of Employer Pension Liabilities (and related Measures) Both to Funds and to Activities Introduction

The Board discussed respondent comments received concerning allocation of a government’s net pension liability (asset) and related measures—that is, pension expense and deferred outflows of resources and deferred inflows of resources related to pensions—among funds in the fund financial statements and between governmental and business-type activities in the government-wide statement of net position. The Board tentatively agreed that the final Employer Statement should continue to exclude guidance for allocating net pension liabilities and related measures among funds in the fund financial statements and between governmental and business-type activities in the government-wide statement of net position.

Issue 4: Classification of a Primary Government and its Component Unit(s) as a Single Employer and Related Accounting and Financial Reporting Guidance

The Board considered comments made by respondents to the Exposure Drafts with respect to the consideration of a primary government and its component unit(s) as one employer and the accounting and financial reporting for a primary government and its component unit(s) when pensions are provided through the same single-employer or agent pension plan. The Board tentatively agreed that the final Statements should carry forward the requirement to consider a primary government and its component unit(s) one employer. The Board also tentatively agreed that the final Employer Statement should carry forward the requirements from the Employer Exposure Draft related to accounting and financial reporting of a primary government and its component units in circumstances in which the primary government and its component unit(s) provide pensions through the same single-employer or agent multiple-employer pension plan. In addition, the Board tentatively agreed that the final Employer Statement should not include requirements to provide pension disclosures for a discretely presented component unit in a reporting entity’s financial statements or to include discretely presented component units in the analysis of a reporting entity’s financial position and results of operations in the MD&A.

Issue 5: Business-Type Activities Issues

The Board considered issues related to pension accounting by business-type activities that were raised by respondents to Employer Exposure Draft. The Board tentatively agreed to carry forward its previous tentative decision to require the use of the entry age method with service cost attributed as a level percentage of payroll. The Board tentatively agreed that the final Employer Statement should not include a footnote to indicate that the business-type activities and enterprise funds are not precluded from applying the provisions of the regulatory accounting guidance in Statement 62, but, rather, it should be noted in the Basis for Conclusions that no reference to the regulatory accounting need be made unless there are limitations on its applicability. The Board also tentatively agreed that the tentative decisions relating to the timing of measurements made at prior meetings sufficiently address the concern regarding timeliness of interim reporting.

Minutes of Meetings, April 18-20, 2012

The Board continued its deliberations of issues raised by respondents to the Exposure Drafts, Accounting and Financial Reporting for Pensions (Employer Exposure Draft) and Financial Reporting for Pension Plans (Plan Exposure Draft). Specifically, the Board considered issues related to (1) pensions provided through cost-sharing plans; (2) reporting for trusts used to administer pension plans; (3) note disclosures and required supplementary information (RSI) for single and agent employers and trusts used to administer single-employer and agent multiple-employer pension plans; and (4) effective date and transition provisions of the final Employer and Plan Statements.

Issue 1: Pensions Provided through Cost-Sharing Plans

Financial-Reporting Responsibility for the Obligation for Benefits to Employees

The Board considered respondent feedback on issues related to the Employer Exposure Draft proposal that individual cost-sharing employers should recognize their proportionate share of the collective net pension liability of all employers in a cost-sharing plan. With regard to which entity or entities should be viewed to have primary responsibility for accounting and financial reporting purposes for the unfunded obligation to employees for pensions provided through cost-sharing plans, the Board considered alternative approaches to viewing the relationships of the employers, employees, plan, sponsor, and nonemployer entities and tentatively affirmed its view that for accounting and financial-reporting purposes, the employers should be viewed as collectively having primary responsibility for the unfunded obligation as a result of the employment exchange transactions.

With regard to the involvement of nonemployer entities that have a legal requirement to make contributions directly to a trust used to administer a pension plan (termed special funding situations), the Board tentatively affirmed that unless the nonemployer entity’s requirement to contribute directly to the trust used to administer the pension plan is defined in terms of a dedicated revenue stream, the nonemployer contributing entity’s requirement to contribute should be viewed as an assumption of (some or all of) the net pension liability of the employer(s). The nonemployer contributing entity’s contributions should be assumed to be associated with current-period service cost and past service cost in the same proportions as employer contributions are assigned to those amounts, unless the plan terms or other legal or statutory provisions related to required contributions indicates that the nonemployer entity’s contributions should be allocated differently. Further, regardless of the manner in which a nonemployer contributing entity’s contributions are defined, including from dedicated revenue streams, if the nonemployer entity is the only entity that is required to make contributions to the trust used to administer the pension plan, the Board tentatively agreed that the nonemployer contributing entity should report its involvement as an assumption of the collective net pension obligation of the employer(s).

With regard to nonemployer entities that do not have a legal requirement to make contributions directly to the plan but that, in some other way, express a responsibility related to the collective unfunded obligation, the Board tentatively affirmed the approach in the Employer Exposure Draft that these entities should be viewed as providing a guarantee that should be evaluated within the guidance for contingencies.

In addition, the Board affirmed its tentative view that a cost-sharing employer’s or nonemployer contributing entity’s obligation relative to the collective unfunded pension obligation meets the definition of a liability in Concepts Statement No. 4, Elements of Financial Statements—that is, a present obligation to sacrifice resources that the entity has little or no discretion to avoid.

Measurement and Recognition Issues

Net Pension Liability

The Board tentatively affirmed that the collective net pension liability for benefits provided through a cost-sharing plan should be measured under the same requirements as tentatively were agreed to by the Board for measurement of single and agent employer net pension liabilities.

With regard to liabilities that should be recognized by individual cost-sharing employers and nonemployer contributing entities that are identified as assuming a portion of the net pension liability of the employer(s), the Board tentatively agreed that the tentative decisions related to measurement of an individual employer’s proportionate share of the collective net pension liability (identified in more detail below) also should be applied to measurement of a nonemployer contributing entity’s proportionate share of the net pension liability of the employer(s).

The Board tentatively agreed that the final Employer Statement should require a cost-sharing employer to recognize as its net pension liability a measure of the present value of the portions of projected future individual-employer contributions that are projected to satisfy the collective net pension liability. This method of measuring the individual-employer net pension liability is referred to as the “direct approach.” For this purpose, the Board tentatively agreed that future contributions should be considered to satisfy, first, service cost in the period in which the contributions are projected to be made, then past service cost. In addition, it tentatively was concluded that the assumptions applied to determine the individual-employer net pension liability should be consistent with assumptions made to determine the collective net pension liability. However, if the application of the direct approach is not practical, the Board tentatively agreed that the final Employer Statement should permit an employer’s net pension liability to be measured by (1) calculating the employer’s proportion in relation to all employers using an approach that is associated with the manner in which contributions are assessed to satisfy the net pension liability and (2) multiplying the collective net pension liability by that proportion.

Regardless of the method used, to the extent, if any, different contribution rates are associated with different components of the collective net pension liability (for example, separate rates are calculated based on an internal allocation of liabilities and assets for different classes or tiers of employees), the Board tentatively agreed that calculation of the employer’s proportionate share should be made in a manner that reflects those separate relationships.

The Board also tentatively decided that a description of the basis for the determination of an employer’s share of the collective net pension liability should be required to be disclosed in the notes to the employer’s financial statements.

Pension Expense, Deferred Outflows of Resources, and Deferred Inflows of Resources related to Pensions

It tentatively was agreed that the measures of collective pension expense, collective deferred outflows of resources, and collective deferred inflows of resources should be determined under the same requirements as tentatively was agreed to by the Board for measurement of those elements for single and agent employers. The Board also tentatively agreed that the final Statement should permit inclusion of collective deferred outflows of resources and collective deferred inflows of resources in collective pension expense over the average expected remaining service life of all employees (including active and inactive employees), regardless of whether separate components of the collective net pension liability are determined for purposes of determining an individual employer’s proportionate share of that measure. With regard to the calculation of an employer’s proportionate share of collective pension expense, collective deferred outflows of resources, and collective deferred inflows of resources, the Board tentatively agreed that the final Statement should permit those amounts to be determined by multiplying collective pension expense, collective deferred outflows of resources, and collective deferred inflows of resources by the ratio of the employer’s total net pension liability to the total collective net pension liability, rather than requiring that amounts be determined on a component-by-component basis.

Individual-Employer Accounting Adjustments

The Board tentatively affirmed that a cost-sharing employer should account for (1) the effect of a change in its proportion and (2) the difference between actual contributions to a pension plan and the proportionate share of collective employer contributions recognized as part of the employer’s change in the collective net pension liability, as a deferred outflow of resources or deferred inflow of resources and recognized in pension expense over the same period used to recognize similar changes in the collective net pension liability in that period. If multiple periods are used at the collective level, the Board tentatively agreed that the average remaining service life of all employees (including active and inactive employees, including retirees) should be permitted to be used for this purpose. In addition, the Board tentatively agreed to permit an employer to account for the net effect of these two items in each period, rather than requiring that each item be accounted for separately in each period.

Timing and Frequency of Cost-Sharing Employer Measures

The Board tentatively agreed that the final Employer Statement should incorporate the same general timing and frequency modifications as previously tentatively agreed to for single and agent employers. With regard to the Employer Exposure Draft proposal that an employer’s proportion be evaluated for significant changes between actuarial valuation dates, the Board tentatively agreed to exclude the employer’s share from this evaluation.

Cost-Benefit Considerations

The Board evaluated issues raised by respondents related to the anticipated costs of the proposals for accounting for benefits by cost-sharing employers and governmental nonemployer contributing entities, and tentatively agreed that the anticipated benefits of the approach (taking into consideration the changes that have been tentatively agreed to, including modifications to the Exposure Draft proposal tentatively agreed to by the Board at this meeting) on balance are expected to exceed the anticipated costs of providing and using that information.

Issue 2: Reporting for Trusts Used to Administer Pension Plans

The Board considered feedback received from respondents to the Plan Exposure Draft and made the following tentative decisions related to accounting requirements for trust funds used to administer pensions:

• The final Statement should be presented as defining accounting and financial reporting for trust funds used to administer pensions rather than for pension plans.
   
• Language similar to that which is included in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, should be included in the final Statement to clarify that new hires and new tiers do not necessarily constitute separate pension plans that should be accounted for as separate trusts.
   
• Investments in life insurance should continue to be reported at cash surrender value. Assessment of other valuation alternatives related to the determination of the fair value of life settlement policies is scheduled to be included in the scope of the GASB’s fair value measurement project.
   
• The final Statement should not address more explicitly the accounting for deferred outflows of resources and deferred inflows of resources, which is covered by other pronouncements.
   
• In circumstances in which the pensions of plan employees are provided through the trust that they administer, net pension liabilities and pension expense recognized by the trust can be estimated. This issue will be discussed in the Implementation Guide that is planned for issuance subsequent to the issuance of the final pension Statements.

The Board also discussed requests from certain respondents to the Exposure Drafts that pension trust funds administering agent multiple-employer plans be required to present a statement or schedule of plan net position by employer, and that pension trust funds administering cost-sharing plans be required to present a statement or schedule of individual-employer proportions. The Board tentatively concluded that neither of the constituent-recommended presentations would meet the definitions of the communication methods identified in Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements. Although it was thought that it might be a “best practice” to provide such information, the schedules themselves were viewed to be special-purpose in nature and, therefore, not within the scope of standards setting for general purpose external financial reporting.

With the exception of the changes addressed above, the Board tentatively agreed to carry forward the proposals in paragraphs 1–29, 35, and 36 of the Plan Exposure Draft without modification.

Issue 3: Note Disclosures and RSI for Single or Agent Employers and for Trusts Used to Administer Single-Employer or Agent Multiple-Employer Pension Plans

Note Disclosures for Single or Agent Employers

The Board discussed respondent comments received about each of the note disclosure proposals for single and agent employers that were included in the Employer Exposure Draft and made the following tentative decisions:

• Disclosure of the total (for all plans) amount of net pension liabilities, pension-related deferred outflows of resources and deferred inflows of resources, and pension expense should be required if those amounts are not otherwise presented.
   
• The proposal in paragraph 31 of the Employer Exposure Draft that would require reported amounts for a primary government and its component unit(s) that provide pensions through the same single-employer or agent pension plan to be identified separately in the reporting entity’s financial statements should be retained in the final Employer Statement.
   
• Disclosures in paragraphs 32–41, of the Employer Exposure Draft, to the extent retained in the final Employer Statement, should be presented on a plan-by-plan basis.
   
• Disclosure of information that provides a description of the benefits, as proposed in paragraph 32 of the Employer Exposure Draft, should be carried forward to the final Employer Statement.
   
• Disclosures related to the significant assumptions used to measure the net pension liability, as proposed in paragraph 33 of the Employer Exposure Draft, generally should be carried forward to the final Employer Statement, with modifications in the text to separately address the mortality assumption(s). With regard to mortality, employers should be required to disclose the source of the assumption(s), for example, the published table(s) on which the assumption is based or that the assumption(s) is based on a study of the experience of the covered group.
   
• With regard to proposals in paragraph 34 of the Employer Exposure Draft for note disclosures about assumptions related to the discount rate, the Board tentatively agreed to require that the following information be presented:
  
  
  • Paragraph 34a: Assumptions made about contributions of the employer (including those of nonemployer contributing entities on behalf of the employer(s)) and employees and about other projected cash flows into and out of the plan.
     
  • Paragraph 34b: The long-term expected rate of return on plan investments and a description of how the long-term expected rate of return on plan investments was determined, including disclosure of significant methods and assumptions used for that purpose. It also tentatively agreed to require all employers to present information about the expected asset allocation, real rates of return for each major asset class, and whether the expected rates of return are presented as arithmetic or geometric means, if not otherwise disclosed, regardless of whether those assumption are used as direct inputs into determination of the assumed long-term expected rate of return.
     
  • Paragraph 34c: The municipal bond index rate and identification of the index selected, if the discount rate incorporates a municipal bond index rate. (The Board tentatively agreed to remove the proposed disclosure of the reasons for selection of the index.)
     
  • Paragraph 34d: The periods of projected benefit payments to which the long-term expected rate of return and the municipal bond index rate, if used, were applied to determine the discount rate.
     
  • Paragraph 34e: The effects on the current-period net pension liability of a 1-percentage-point increase and a 1-percentage-point decrease in the discount rate.
     
• The proposal in paragraph 35 of the Employer Exposure Draft to require disclosure of all information required by other standards about the elements of the pension trust’s basic financial statements tentatively should be carried forward to the final Employer Statement. In addition, the proposal that employers be permitted to refer to the trust report for these disclosures should similarly be included in the final Employer Statement; however, for reference to be permitted, the information would need to be publicly available on the internet.
   
• Disclosure of a schedule of changes in the net pension liability and additional supporting information about certain individual line items in that schedule, as proposed in paragraphs 36 and 37 of the Employer Exposure Draft, should be carried forward to the final Employer Statement.
   
• Disclosure of information about the components of pension expense, as proposed in paragraph 38 of the Employer Exposure Draft, should be carried forward to the final Employer Statement with certain modifications to the required presentation of components. The following components should be separately identified in the schedule, if applicable: (1) current-period differences between expected and actual experience in the measurement of the total pension liability recognized in pension expense, (2) current-period changes of assumptions recognized in pension expense, (3) employee contributions, (4) current-period projected earnings on plan investments, and (5) current-period differences between projected and actual investment earnings recognized in pension expense. Other components should be consolidated in the presentation as follows: (a) service cost, interest, and benefit changes; (b) beginning deferred inflows of resources and beginning deferred outflows of resources recognized in pension expense; and (c) administrative expense and other changes not separately identified.
   
• Disclosure of information about changes in the pension-related beginning deferred outflows of resources and beginning deferred inflows of resources balances, as proposed in paragraphs 39 and 40 of the Employer Exposure Draft, should be retained in the final Employer Statement.
   
• Disclosure of information about allocated insurance contracts, as proposed in paragraph 41 of the Employer Exposure Draft, should be carried forward to the final Employer Statement. The Board also considered respondent suggestions for additional disclosures, including (1) a comparison between the actuarially determined employer contribution, if applicable, and the employer’s actual contribution for the current period; (2) a comparison between the gross unfunded benefit payments and the discounted unfunded benefit payments used in the calculation of the total pension liability; (3) details of all projected benefit payments used in the calculation of the total pension liability; (4) presentation of the net pension liability, adjusted for deferred outflows of resources and deferred inflows of resources; and (5) inclusion of the net pension liability in the schedule of long-term liabilities. The Board tentatively decided not to require that such information be presented in notes.

RSI for Single or Agent Employers

The Board discussed respondent feedback about the Employer Exposure Draft proposal for the presentation of RSI schedules, including feedback about the number of years of information that was proposed to be presented in those schedules. The Board tentatively agreed to retain the proposed requirements for schedules containing liability-related information (a schedule of changes in the net pension liability and a schedule of pension liability ratios), as proposed in paragraphs 42a and 42b, respectively. It also was tentatively agreed that the final Employer Statement should permit the presentation of a single schedule containing the information from both proposed schedules. With regard to the proposal in paragraph 42c of the Employer Exposure Draft for employers with an actuarially determined contribution to present an RSI schedule of employer contributions, the Board tentatively agreed to retain that requirement. The Board also tentatively affirmed an earlier tentative decision that employers without an actuarially determined contribution should not be required to present an RSI schedule of employer contributions. For all schedules of RSI that would be required, the Board tentatively affirmed that information for the past 10 years should be reported (however, retroactive application would not be required).

In addition to feedback on the RSI schedules that were proposed in the Employer Exposure Draft, the Board considered respondent suggestions for the presentation of additional information in RSI, including (1) a 10-year schedule of actual rates of return on investments compared with the long-term expected rate of return used to determine the discount rate and (2) a specific requirement to include a discussion of pensions in management’s discussion and analysis, the Board tentatively agreed that the final Statement should not include these requirements.

The Board also discussed the measurement date for information presented in schedules of RSI and tentatively agreed that measurement of the information in the schedule of changes in the net pension liability and the schedule of pension liability ratios should be coordinated with the measurement date for the net pension liability recognized in each period. However, it tentatively concluded that information in the RSI schedule of employer contributions as compared to actuarially determined employer contributions should be measured as of the employer’s fiscal year-end.

With regard to the Employer Exposure Draft proposals in paragraph 43 related to the notes to RSI, the Board tentatively agreed to retain the proposed requirements, with clarification that amounts presented for prior years should not be restated for the effects of changes in benefits or in assumptions that occurred subsequent to the measurement date of that information.

Coordination of Note Disclosures and RSI between Single or Agent Employers and Pension Trust Financial Reports

The Board considered respondent suggestions to permit employers to refer to the separately issued financial reports of trust funds used to administer pensions in place of presenting information directly in the note disclosure or RSI presentations of the employers. The Board tentatively agreed that, with the exception of notes related to plan net position (as mentioned above), employers should present all of the required notes and RSI, regardless of whether a separately issued financial report that contains the same information from the perspective of the pension trust is available. The Board also tentatively agreed to retain the proposed provisions that direct employers to minimize the presentation of duplicate information if the employer includes the pension trust in its financial report.

Note Disclosures and RSI for Trusts Used to Administer Single-Employer or Agent Multiple-Employer Defined Benefit Pension Plans

Except as indicated below, the Board tentatively agreed to include in the final standard the note disclosures presented in paragraphs 30 and 31 of the Plan Exposure Draft, including the provision in paragraph 30a(5) that only trusts that have the authority to establish or amend benefit provisions should be required to disclose a brief description of the benefit provisions and the provision in paragraph 30d(2) that only trusts that have the authority to establish or amend contribution requirements should be required to disclose the basis for the determination of actual contributions and significant methods and assumptions used in the calculation of current-period contributions, if actual contributions are determined on an actuarial basis. The Board also considered a respondent suggestion to modify the proposal in paragraph 30b(3) to require that pension trusts identify, in notes, investments (other than those issued or explicitly guaranteed by the U.S. government) in any one organization that represent 5 percent or more of net position of the trust. The Board tentatively agreed to retain the requirement as proposed.

With regard to the proposals in paragraph 30a(4) (notes) and paragraphs 32d and 33 (RSI) that all pension trusts disclose both the annual time-weighted and money-weighted rates of return for the current period and present RSI schedules containing both the annual time-weighted and money-weighted rates of return for the past 10 years, the Board tentatively agreed to limit the requirements in the final Statement to information about only the annual money-weighted rate of return. The Board tentatively agreed to discuss at a later meeting whether to establish guidelines for calculating the money-weighted rate of return.

With regard to the requirement for trusts used to administer single-employer plans to disclose information about the net pension liability of the employer and to present in RSI a schedule of changes in the net pension liability of the employer(s), a schedule of pension liability ratios, and a schedule of employer contributions if an actuarially determined employer contribution is determined, as proposed in paragraph 31 (notes) and paragraphs 32a–c (RSI) of the Plan Exposure Draft, the Board tentatively agreed to retain the proposed requirements, with modifications to reflect changes tentatively agreed to relative to the same proposals that were discussed in the context of single and agent employer note disclosures and RSI.

The Board also considered a respondent request for an exception to the proposed requirement to present ratio information that compares certain measures to covered-employee payroll when a plan is closed to new employers. The Board tentatively decided not to provide an exception to the requirements for this circumstance. The Board also tentatively agreed to retain the proposal in paragraph 34 of the Plan Exposure Draft for notes to RSI, as applicable.

In addition, the Board considered the Plan Exposure Draft approach for trusts used to administer agent pension plans and tentatively affirmed that agent plans should not be required to present note disclosures or RSI schedules related to information about the net pension liabilities of the employers.

Issue 4: Effective Date and Transition Provisions of the final Employer and Plan Statements

The Board tentatively agreed that the final Plan Statement should be effective for all plans for fiscal years beginning after June 15, 2013, and that the transition provisions of the Plan Exposure Draft should be carried forward to the final Plan Statement.

In addition, the Board tentatively agreed that the final Employer Statement should be effective for all employers and governmental nonemployer contributing entities for fiscal years beginning after June 15, 2014. The Board tentatively agreed to discuss at a future Board meeting the possibility of providing disclosure “relief” in situations in which differently calculated actuarial information might be needed to comply with Statement 27 (for employers) and the final Plan Statement (for plans) during the transition period. The Board tentatively affirmed that accounting changes made to comply with the standard should be reported as adjustments of prior periods and that financial statements presented for the periods affected should be restated to the extent practical. However, it tentatively was agreed that, if restated balances of deferred outflows of resources and deferred inflows of resources are reported in the period of transition, all components of those balances should be included and that if full restatement is not practical, beginning balances for deferred outflows of resources and deferred inflows of resources should not be reported.

As previously noted, the Board also tentatively affirmed that, in the initial period of implementation, if information to complete the schedules of RSI for all 10 years is not available, that information should be presented for those years for which information is available (and built prospectively). It also tentatively was agreed that a note emphasizing this aspect of the transition provisions should be included in the illustrations of the 10-year schedules in the final Plan and Employer Statements.

Minutes of Teleconference, March 27, 2012

The Board continued its deliberation of issues raised by respondents to the Exposure Drafts, Accounting and Financial Reporting for Pensions (Employer Exposure Draft) and Financial Reporting for Pension Plans (Plan Exposure Draft). Specifically, the Board considered issues related to (1) defined contribution pensions and the display of defined benefit and defined contribution pensions in employer financial statements, (2) requirements for the municipal bond rate when used in determining the discount rate, and (3) deferred retirement option programs.

Defined Contribution Pensions and Display of Defined Benefit and Defined Contribution Pensions in Employer Financial Statements

With regard to accounting and reporting requirements for circumstances in which an employer’s actual contributions to a defined contribution plan exceeds the pension liability, the Board tentatively agreed that the final Employer Statement should include reference to the possibility that if actual contributions to a defined contribution pension plan exceed the pension liability the excess amount would be reported as a pension asset.

With regard to the display of pension liabilities and pension assets in employer financial statements, the Board tentatively agreed that pension liabilities for benefits provided through different plans may be displayed in the aggregate in the financial statements and that pension assets for benefits provided through different plans may be displayed in the aggregate, with (aggregate) assets and (aggregate) liabilities separately displayed. The tentative display requirements would be applied separately to defined benefit pension and defined contribution pensions.

With changes to reflect this tentative decision, the Board tentatively affirmed that the Employer Exposure Draft proposals related to defined contribution pensions should be included in the final Employer Statement.

With regard to a respondent suggestion to require that defined contribution pension plans disclose information about the contribution rates of employers, the Board tentatively agreed that no modification should be made to address this issue at this time. It also tentatively agreed that the Plan Exposure Draft proposals related to defined contribution pension plans should be included in the final Plan Statement.

Discount Rate: Requirements for the Municipal Bond Rate

With regard to the requirements for the municipal bond rate, the Board tentatively affirmed that the maturity should be 20 years. The Board also tentatively agreed that the high-quality municipal bond index rate that is used in the determination of the blended discount rate, if applicable, should represent a yield or index rate for tax-exempt general obligation bonds that have an average rating of AA/Aa or higher.

Deferred Retirement Option Programs

With regard to deferred retirement option programs (DROPs), the Board tentatively agreed that, for financial reporting purposes, retirement begins upon participation in a DROP and that guidance should be included in the final Statements to clarify this approach. In addition, the Board tentatively decided that amounts in DROP accounts should not be recognized by the pension plan as a liability until the amounts are due and payable to the employee. Those amounts related to DROPs should be reported as net position restricted for pensions until a liability is recognized or benefits have been paid. The Board also tentatively agreed that pension plans should be required to disclose information about amounts held in DROP accounts. Specific details of that tentative disclosure will be discussed at the April 2012 meeting.

Minutes of Meeting, March 6-8, 2012

The Board continued its deliberation of issues raised by respondents to the Exposure Drafts, Accounting and Financial Reporting for Pensions (Employer Exposure Draft) and Financial Reporting for Pension Plans (Plan Exposure Draft). Specifically, the Board considered issues related to (a) the timing and frequency of the measurement of the net pension liability for single and agent employers and single-employer and cost-sharing multiple-employer plans and (b) single and agent employer pension expense recognition.

Timing and Frequency of Measurements

With regard to the timing of the measurement of the net pension liability for single and agent employers, the Board tentatively agreed to modify the Employer Exposure Draft proposal that would have required a single or agent employer to recognize its net pension liability as of its fiscal year-end. The Board tentatively decided that a single or agent employer should be permitted to recognize a net pension liability that is measured as of a date (referred to as the measurement date) no earlier than the end of its prior fiscal year, consistently applied from period to period.

The Board tentatively agreed that the total pension liability component of the net pension liability should be determined at the measurement date either by (a) an actuarial valuation as of that date or (b) the use of update procedures to roll forward amounts to the measurement date from an actuarial valuation as of a date no more than 30 months (plus 1 day) prior to the employer’s fiscal year-end. The Board also tentatively affirmed the Employer Exposure Draft proposal that would require a single or agent employer to obtain, for financial reporting purposes, actuarial valuations of the total pension liability at least biennially and that the final Statements should indicate that more frequent valuations are encouraged.

With regard to the procedures used to update an actuarial valuation to the measurement date and the proposal to require that measures reflect the effects of significant changes, if any, that occur after the actuarial valuation date, the Board affirmed the Employer Exposure Draft proposal to rely, generally, upon professional judgment to evaluate the significance of changes and to determine the update procedures that are necessary to reflect those changes. However, the Board tentatively agreed that the final Statement should include additional clarification that the effects of changes in the discount rate on the total pension liability should be considered in the evaluation of significant changes.

To the extent that update procedures are used, the Board affirmed the Employer Exposure Draft proposal to require the effects of significant changes that occur between the actuarial valuation date and the measurement date to be reflected in the measure of the net pension liability of a single or agent employer. The Board tentatively agreed that, if the employer reports a net pension liability measured as of a date other than its fiscal year-end and significant changes occur between the measurement date and its fiscal year-end, the employer should disclose information about the nature of the change and, if known, an estimate of the financial impact of the change.

The Board also discussed concerns raised by respondents related to obtaining updated measures subsequent to the employer’s fiscal year-end but prior to the issuance of the financial statements and tentatively decided that current subsequent events guidance should be applied and that no additional clarifying guidance related to this issue is needed in the final Statement.
To the extent that the Board affirms at a subsequent meeting that measures of the net pension liability of the employer(s) should be required to be included in the financial report of a single-employer or cost-sharing multiple-employer pension plan (for example, disclosed), the Board tentatively affirmed the Plan Exposure Draft proposals related to the timing and frequency of the measurement of the net pension liability of the employer(s).

Expense Recognition

The Board discussed the overall approach to single and agent employer pension expense recognition as proposed in the Employer Exposure Draft and tentatively decided to modify the Employer Exposure Draft proposals related to the recognition of the effects on the total pension liability of differences between expected and actual experience with regard to economic or demographic factors (differences between expected and actual experience) and the effects of changes of assumptions about future economic or demographic factors (changes of assumptions). Specifically, the Board tentatively agreed that differences between expected and actual experience and changes of assumptions for all employees (both active and inactive, including retirees) should be recognized as deferred outflows of resources and deferred inflows of resources. The Board tentatively decided that the resultant deferred outflows of resources and deferred inflows of resources should be recognized in pension expense over the average expected remaining service lives of all employees, both active and inactive, if applicable, using a systematic and rational, closed-period method. Additionally, the Board requested that the project staff verify details about the calculation related to the expected remaining service lives of all employees, both active and inactive, to ensure that practice is consistent with the Board’s understanding of the calculation.

The Board affirmed the Employer Exposure Draft proposal to require differences between projected and actual plan investment earnings to be recognized in pension expense over a closed five-year period, in a systematic and rational manner. With regard to the presentation of deferred outflows of resources and deferred inflows of resources arising from differences between projected and actual plan investment earnings, the Board tentatively agreed to modify the Employer Exposure Draft proposal to instead require that deferred outflows of resources and deferred inflows of resources resulting from differences between projected and actual plan investment earnings be presented on a net basis in the employer’s statement of net position.

With regard to expense recognition for changes in the net pension liability resulting from other events (for example, service cost, interest, benefit changes, and projected earnings on plan investments), the Board tentatively affirmed the approach proposed in the Employer Exposure Draft, which would require recognition of those effects as pension expense in the period of the change.

The Board also discussed whether additional guidance related to the treatment of employer-paid member contributions should be included in the final Statement, and tentatively agreed to defer a decision regarding this issue to a future meeting.

Minutes of Teleconference, February 9, 2012

The Board continued its deliberation of issues raised by respondents to the Exposure Draft, Accounting and Financial Reporting for Pensions. Specifically, the Board considered issues related to employers’ liabilities to a defined benefit pension plan. It also considered issues concerning the recognition of all pension-related liabilities and expenditures in financial statements prepared using the current financial resources measurement focus and modified accrual basis of accounting.

With respect to liabilities to a defined benefit pension plan, the Board considered a project staff recommendation to clarify that an employer would recognize pension expense for the incurrence of such a liability only to the extent that there is a net effect on the employer’s net position that results from (1) incurrence of a liability to defined benefit pension plans for employer contributions and (2) a change in the employer’s recognized net pension liability associated with the transaction. The Board tentatively agreed that the final Statement should carry forward the Exposure Draft proposals regarding employers’ liabilities to a defined benefit pension plan, with the clarification recommendation by the project staff.

With respect to modified accrual recognition, the Board tentatively agreed that the final Statement should clarify that net pension liabilities are normally expected to be liquidated with expendable available resources to the extent that pension benefits have matured—that is, pension benefit payments are due and plan net position is not sufficient for payments of benefits. Additionally, the Board tentatively agreed that the final Statement should clarify that liabilities to defined benefit pension plans, as well as liabilities for defined contribution pensions, are normally expected to be liquidated with expendable available resources when amounts are due pursuant to contractual arrangements or legal requirements.

Minutes of Meetings, January 24-26, 2012

The Board continued its deliberation of issues raised by respondents to Exposure Drafts, Accounting and Financial Reporting for Pensions (Employer Exposure Draft) and Financial Reporting for Pension Plans (Plan Exposure Draft). Specifically, the Board considered issues primarily related to the overall financial-reporting focus and nature of the employment exchange, general cost concerns, and comments and other feedback about proposed measurement and recognition of the net pension liability by single and agent employers, including the projection of benefit payments, the discount rate calculation, and the attribution method.

Financial Reporting Focus

The Board discussed issues related to the proposed “shift” away from the current financial reporting focus on the funding of pension benefits and the potential displacement of information about or from the measurement perspective of pension funding.  The Board tentatively affirmed its view that information included in employer’s financial reports should reflect the financial effects of the broad range of transactions and other events that impact the employer’s obligation to provide pensions—not only those associated with funding the benefits. The Board also considered recommendations by respondents to the Exposure Drafts related to incorporating pension funding information in employer financial reports.  Related to this issue, the Board tentatively decided:

• The final Statements should not require the unpaid portion of actuarially determined contributions to be presented as a subset of the employer’s net pension liability.
   
• The final Statements should not establish amortization limits for funding purposes.
   
• The final Statements should not require the following additional disclosures related to funding measures:
   
  • An explanation that the reported measures are not intended to be funding guidelines and should not be used as funding benchmarks or targets
     
  • An explanation of whether and, if so, how the assumptions used for accounting measures and those used for funding measures differ
     
  • Information specifically about the covered payroll growth assumptions used in calculating reported measures, although the Board noted that all significant assumptions would be required to be disclosed under the Exposure Draft proposal.

With regard to respondent suggestions that the final Statements be modified to require (1) additional, funding-oriented measures such as funded status and (2) measures of actuarially calculated employer contributions by employers regardless of whether such measures are produced for funding purposes, the Board tentatively agreed to consider, subsequent to issuance of final Statements, a potential follow-up project to evaluate whether such information should be required.

Definition of a Liability

The Board tentatively affirmed its view that the net pension liability (the portion of the obligation to employees for defined pension benefits in excess of the plan net position available for payment of those benefits) meets the definition of a liability as defined by Concepts Statement No. 4, Elements of Financial Statements.  With respect to reporting the pension liability, the Board considered but tentatively agreed not to make modifications to the final Statements to address potential conflicts arising from the existence of certain finance-related contractual or legal requirements. In addition, it discussed issues raised with regard to accounting and financial reporting requirements for an employer’s secondary responsibility for payment of benefits should earnings on plan investments not be sufficient.  The Board tentatively agreed that the employer’s secondary responsibility is akin to a financial guarantee and that, as such, it generally would not meet the definition of a liability of the employer. It tentatively agreed to consider a potential note disclosure about the employer’s secondary responsibility for payment of pension benefits should earnings on plan investments not be sufficient. That discussion is scheduled for a later meeting.

The Board tentatively affirmed its view that the pension liability to employees for defined benefits is a single, integrated item comprising two components—the total pension liability and plan net position—and affirmed the Employer Exposure Draft proposals for net presentation of the liability. The Board also considered the following suggestions received by respondents related to the presentation of the net pension liability: presenting deferred outflows of resources related to pensions and deferred inflows of resources related to pensions as components of the net pension liability, creating a new net position classification for postemployment benefit-related balances, and providing guidance on the presentation of the pension liability in classified statements of net position. The Board tentatively agreed that the final Statements should not be modified for these suggestions.  With regard to the suggestion to provide guidance on the presentation of the pension liability in classified statements of net position, the Board agreed to consider including this guidance in an Implementation Guide.

Measurement and Recognition

The Board tentatively affirmed its view that the measurement and recognition requirements for accounting and financial reporting of pensions should reflect both (1) of the longevity of governments and of pension plans and (2) a view of the interrelationship of individual periods of the employment exchange transaction that result in the employer’s pension obligation.  In addition, the Board considered the comments and testimony received on the Exposure Drafts’ proposals in the following areas and made tentative decisions as discussed below:
 

• Selection of assumptions. The Board tentatively affirmed the Exposure Drafts’ proposals that assumptions for accounting purposes be selected in accordance with Actuarial Standards of Practice.  The Board considered respondent recommendations to provide additional guidance related to the selection of assumptions, including an explanation in the Basis for Conclusions of the appropriateness of the Actuarial Standards of Practice, potential requirements related to the use of mortality tables and the frequency of experience studies, potential requirements regarding which party has the authority to select assumptions, and additional guidance related to selecting among various assumptions.  The Board tentatively decided to make no modifications to the final Statements for these suggestions.
   
• Certain assumptions used in the projection of benefit payments. The Board tentatively affirmed the Exposure Drafts’ proposals that the projection of pension benefit payments should include the projected effects of (1) future salary changes, (2) future service credits, (3) automatic cost-of-living adjustments (COLAs) and other automatic postemployment benefit changes, and (4) ad hoc COLAs and other ad hoc postemployment benefit changes only to the extent that such changes are considered to be substantively automatic. The Board considered a respondent suggestion to include additional guidance regarding how to apply the requirement to project automatic postemployment benefit changes that are based on an index or on the occurrence of certain events.  It tentatively decided that the final Statements should not be modified to include such guidance and that this topic should be considered for inclusion in an Implementation Guide. The Board also considered respondent suggestions related to providing additional guidance associated with the criteria for determining whether an ad hoc postemployment benefit change is substantively automatic. On this issue, it tentatively affirmed its position to provide examples of considerations that might be relevant in making such a determination rather than to include specific criteria in the standard.  The Board also tentatively affirmed the Exposure Draft proposals related to the impact of allocated insurance contracts on the measurement of the net pension liability of the employer.
   
• Discount rate. The Board reaffirmed its position that the discount rate should be a single rate that produces a present value of total projected benefit payments equivalent to that obtained by discounting projected benefit payments using (1) the long-term expected rate of return on plan investments to the extent that current and expected future plan net position available for pension benefits are projected according to the Exposure Draft proposal to be sufficient to make benefit payments and to continue investing using the investment strategy selected for use in the long term and (2) a high-quality municipal bond index rate for those payments that are projected to be made beyond that point.
   
  • Long-term expected rate of return. The Board discussed whether to establish more detailed requirements than those proposed in the Exposure Drafts related to the selection of the rate and tentatively decided that no modification should be made to the final Statements.  The Board also tentatively affirmed that (1) “long-term” refers to the period between the time when employees begin to provide services and when they receive pension benefits and (2) the long-term expected rate of return on plan investments refers to what the selected investment strategy is expected to earn over that period.  In addition, the Board tentatively confirmed its original intent in the Exposure Drafts that the long-term expected rate of return should be expressed net of investment expense, but not net of administrative expense.
     
  • High-quality municipal bond index rate. The Board tentatively affirmed its view that a municipal bond index rate should be used in the determination of the discount rate when discounting benefit payments that are projected to occur in periods in which plan net position, as projected according to the Exposure Draft proposal, would not be sufficient to make benefit payments and to continue investing using the investment strategy selected for the long-term. Based on the availability of rate information, the Board tentatively agreed to modify the Exposure Draft provisions (which would have required the use of a 30-year index rate for this purpose) to instead require that the rate should represent a yield or index rate for bonds with a maturity of 20 years. The Board considered respondent suggestions to use the 20-Tresury bond rate, a short-term investment rate, or a municipal bond index rate that reflects a taxable rate. With regard to these suggestions, the Board tentatively agreed that no modifications should be made.  The Board also tentatively agreed that the municipal bond index rate should not be capped at the long-term expected rate of return on plan investments. In addition, it tentatively was agreed that the discount rate proposals should not be modified to exempt (1) an agent employer from establishing a discount rate specific to its individual plan administered by the agent multiple-employer plan or (2) newly created plans.
     
  • Projecting contributions for the purposes of determining the discount rate. The Board tentatively agreed to modify the Exposure Drafts’ proposals to include the following: 
    • In circumstances in which either (1) contributions are subject to statutory or contractual requirements or (2) a formal, written policy related to employer contributions exists, professional judgment should be applied to project future employer contributions. Application of such judgment should consider the employer’s most recent five-year contribution history as a key indicator of future contributions and should reflect all other known events and conditions.  In the event that no statutory or legal contribution requirement or formal, written contribution policy exists, projected contributions should be limited to an average of contributions over the most recent five-year period, potentially modified based upon the consideration of subsequent events.  For this purpose, the basis for the average (for example, percentage of pay contributed, or percentage of actuarially determined contributions) will be a matter of professional judgment.
       
    • The Board also considered respondents’ suggestions to establish a set of criteria relative to employer contribution policy and practice that would serve as a “safe harbor” that would expressly exempt an employer from projecting cash flows for purposes of determining the discount rate and would allow the employer to use the long-term expected rate of return as the discount rate. It tentatively decided that the final Statements should not be modified to include such criteria. However, the Board tentatively agreed to modify the language in the Exposure Draft to indicate the possibility that the sufficiency of projected plan net position to pay projected pension benefits might be determined through other methods
       
    • The Board also tentatively agreed to clarify that for purposes of projecting future employer and employee contributions to determine the discount rate, projected contributions should be considered to offset, first, the service costs of the employees in the period and, second, service costs of earlier periods.
• Attribution method. The Board tentatively affirmed its view that a single method—the entry age actuarial cost method applied with service cost determined as a level percentage of pay—should be required for accounting purposes. The Board considered suggestions received in response to the Exposure Draft to include additional discussion of the consideration of multiple assumed exit ages in the application of the entry age actuarial cost method, and it tentatively decided that no modification should be made to the final Statements.  In addition, the Board discussed whether guidance should be provided related to the application of the entry age actuarial cost method to the Deferred Retirement Option Program (DROPs), and tentatively agreed to consider issues related to DROPs later in the project.
   
• Measurement of plan net position. The Board tentatively affirmed its view that the plan net position component of the employer’s net pension liability should be measured in the same way that it is measured in the pension plan’s statement of plan net position.
   
• Recognition of the net pension liability by a single or agent employer. The Board tentatively affirmed its view that the net pension liability of a single or agent employer is measurable with sufficient reliability to be recognized in the employer’s financial statements.
   
• Terminology. The Board tentatively agreed to minor terminology changes—to use the term salary changes rather than salary increases and to refer to the attribution method as the entry age actuarial cost method rather than the entry age normal actuarial cost method—based on respondent recommendations.

Minutes of Meeting, December 13-15, 2011

The Board began its redeliberations of issues addressed in the Exposure Draft, Accounting and Financial Reporting for Pensions (Employer Exposure Draft), including consideration of comments and testimony received on the Board’s proposals. Specifically, the Board considered issues primarily related to the scope of the Employer Exposure Draft, the applicability of the Employer Exposure Draft proposals, the interaction of the proposals with other standards, and the classification of pensions for purposes of applying the provisions of the Employer Exposure Draft. Because of the interrelationship of the Employer Exposure Draft and the Exposure Draft, Financial Reporting for Pension Plans (Plan Exposure Draft), the impact of the issues on proposals in the Plan Exposure Draft also was discussed, where relevant).

Related to the scope of the Exposure Drafts, the Board discussed respondent comments that suggested the scopes be expanded to include other postemployment benefits (OPEB). The Board also discussed concerns related to the limitation of the scope of the Exposure Drafts to benefits provided through a plan administered through a qualified trust, as defined in the proposals. The Board tentatively affirmed its prior decision to exclude from the scopes of the Exposure Drafts both OPEB and pensions that are not provided through a qualified trust, which are scheduled to be addressed in a separate phase of the of the postemployment benefits project.

To clarify the continued applicability of current standards on pension accounting and financial reporting to pensions that are not included in the scope of the proposals, the Board tentatively agreed to consider modifications to language in the scope and applicability section of the final Statements to clarify that the requirements of the Statements are intended to replace the requirements of prior Statements only to the extent that benefits are provided through a plan that is administered through a qualified trust. The Board will consider whether editorial changes to the discussions in the Summary and in the Basis for Conclusions of the documents might further clarify this issue when the drafts of the final Statements are reviewed.

The Board also discussed suggestions or concerns raised by respondents related to the criteria for a qualified trust, the definition of pensions, and the application of the proposals to pensions provided to volunteers. Related to the three criteria that define a qualified trust, the Board tentatively agreed to make modifications to address respondent comments suggesting that the criteria should be clarified to specifically note that the payment of administrative costs and refunds of employee contributions in accordance with the benefit terms would not cause a trust to fail to meet the criteria to be considered a qualified trust. Further, the Board tentatively agreed to include in the criteria an indication that refunds to employers in the case of employee forfeitures of nonvested balances in a defined contribution pension plan would not violate the criterion. Additionally, the Board tentatively agreed that alternative language for the term qualified trust should be explored in order to reduce the possibility of confusion with similar terminology used by the Internal Revenue Service for another purpose.

Related to the definition of pensions, in response to respondent comments, the Board tentatively agreed to minor editorial changes to clarify the two categories of benefits that should be classified as a pension:(1) retirement income and (2) postemployment benefits other than retirement income that are provided through a pension plan.

With respect to the applicability of the provisions in the Exposure Drafts related to benefits provided to volunteers, the Board tentatively decided that language should be included in the final Statements to indicate that the standard is intended to apply to such benefits.

With regard to the interaction of the proposals in the Exposure Drafts with other standards, the Board tentatively agreed to clarify the effect on accounting for compensated absences by amending the Codification Instructions to additionally specifically exclude contributions to a cost-sharing multiple-employer defined benefit pension plan that is within the scope of the Exposure Drafts from the measurement of a compensated absences liability. The Board considered other respondent suggestions to modify the discussion in the Exposure Drafts related to the effect of the proposals on the requirements of Statement No. 47, Accounting for Termination Benefits. It tentatively decided to retain the discussion in the Exposure Drafts without modification.

The Board also discussed issues related to the classification of pensions as either defined benefit or defined contribution. The Board tentatively reaffirmed the definitions in the Exposure Drafts, including the classification of benefits, such as those in which the plan retains the risks associated with the provision of annuities that are determined on the balance in an employee’s account at the time of retirement, as defined benefit pensions. Additionally, the Board tentatively agreed that no modification should be made to the Plan Exposure Draft to include additional guidance related to the issue of a single trust being used to provide both defined benefit pensions and defined contribution pensions. Such issues will be considered for inclusion in the Implementation Guide that is planned to be developed following issuance of the final Statement(s).

Last, the Board discussed issues related to the classification of pension plans as either agent multiple-employer or cost-sharing multiple-employer. It considered the definitions of those types of plans as proposed in the Exposure Drafts, as well as comments received from respondents describing multiple-employer plan structures that have characteristics of both types of plans. The Board agreed to defer a decision on whether and, if so, how to provide additional guidance to address these types of plans. It tentatively was agreed that the Board would reconsider this issue after it has considered feedback received related to the proposals for measurement and recognition of employer liabilities in multiple-employer situations, as well as comments on proposals related to note disclosures and required supplementary information.

Minutes of Previous Meetings 

Postemployment Benefit Accounting and Financial Reporting—Major Tentative Decisions

Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68, Accounting and Financial Reporting for Pensions, were approved in June 2012.

Postemployment Benefit Accounting and Financial Reporting—Field Test
Postemployment Benefit Accounting and Financial Reporting—Relevant Links

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¹Some of these organizations set standards for the private sector, some for the public sector, and some for both.