Pensions – Technical Correction
Project Description: The objective of the project would be to address an issue in Statement No. 68, Accounting and Financial Reporting for Pensions, for which technical correction to a transitive provision is needed.
Status:
Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, was issued in November 2013.
Pensions – Transition for Contributions Made Subsequent to the Measurement Date
Background: Because Statement 68 permits an employer to recognize a net pension liability measured as of a date up to one year prior to its fiscal year end, an employer can have a situation in which it has made a contribution subsequent to the measurement date of the beginning net pension liability at transition but before the beginning of the initial implementation period. For example, if an employer is applying Statement 68 for the first time to its financial statements for the fiscal year ending June 30, 2014, the beginning net pension liability could be determined as of June 30, 2012, (one year prior to the beginning of the fiscal year ending June 30, 2014). Further, the employer could have made contributions to the pension plan between June 30, 2012, and June 30, 2013. On an ongoing basis, the amount of employer contributions between June 30, 2012, and June 30, 2013 would be recognized as a deferred outflow of resources at June 30, 2013. However, if all deferred outflows of resources and deferred inflows of resources related to pensions cannot be determined as of June 30, 2013, to comply with the requirement of paragraph 137, the contribution-related amount cannot be recognized as a beginning deferred outflow of resources at transition.
Instead, the employer would recognize an adjustment to its beginning net position that includes the impact of the amount of the contributions made between June 30, 2012, and June 30, 2013. However, at June 30, 2014, the employer will have to account for the change in the net pension liability during the reporting period—an amount that also includes the effect of the contributions made between June 30, 2012 and June 30, 2013. The result is what may be a significant understatement of the restated beginning net position and what may be a significant understatement of expense in the first year of implementation.
Accounting and Financial Reporting Issue: Paragraph 137 of Statement 68 requires that, if determination of the amounts of all deferred outflows of resources and deferred inflows of resources related to pensions is not practical at the beginning of the period when the provisions of Statement 68 are adopted, beginning balances of deferred outflows of resources and deferred inflows of resources should not be reported. Statement 68 also permits an employer to recognize a net pension liability measured as of a date one year prior to its fiscal year end and requires that, on an ongoing basis employer contributions made subsequent to the measurement date but before the end of the employer’s fiscal year be reported as a deferred outflow of resources until the contributions are reflected in the net pension liability. Statement 68 also prohibits recognizing the effect of employer contributions in pension expense. However, in circumstances in which all deferred outflows of resources and deferred inflows of resources related to pensions cannot be determined as the beginning of the initial implementation period, the application of the Statement provision could result in a significant understatement of the restated net position (even though the deferred outflows of financial resources associated with these contributions can be readily determined) and a significant understatement of expense in the first year of implementation.
Project History: The project was added to the Board’s current technical agenda in April 2013.
Current Developments: In June 2013, the Board approved issuance of an Exposure Draft, Pension Transition for Contributions Made Subsequent to the Measurement Date.
Pension Transition for Contributions Made Subsequent to the Measurement Date—Recent Minutes
Minutes of Meetings, October 29-31, 2013
The Board reviewed a preballot draft of a final Statement, Pension Transition for Contributions Made Subsequent to the Measurement Date, and provided clarifying changes that will be incorporated into the ballot draft of the final Statement. The Board then directed the project staff to prepare a ballot draft for consideration at the November teleconference.
Minutes of Meetings, September 17-19, 2013
The Board discussed comments received from respondents to the Exposure Draft, Pension Transition for Contributions Made Subsequent to the Measurement Date. The Board considered the following respondent recommendations—further amend the transition provisions of Statement 68 to permit recognition of other deferred outflows of resources or deferred inflows of resources in circumstances in which all such balances are not determinable; amend Statement 68 to recognize all pension contributions made between the measurement date of the net pension liability and the fiscal year-end of the government as a financial statement element other than a deferred outflow of resources; incorporate the proposed guidance into the Codification of Governmental Accounting and Financial Reporting Standards (Codification); and make a clarifying edit to paragraph 13 in the Basis for Conclusions. After deliberation, the Board tentatively decided not to make additional amendments to the transition provisions of Statement 68 and not to expand the scope of the project to reconsider the classification of contributions made between the measurement date of the net pension liability and the fiscal year-end of the government. The Board tentatively agreed to include in the Codification Instructions section of the final Statement information about the placement of the effective date and transition provisions in Appendix D of the Codification. The Board also tentatively agreed to make the clarifying edit to the Basis for Conclusions that was suggested by respondents.
Minutes of Meetings, June 25–27, 2013
The Board reviewed a ballot draft of the Exposure Draft, Pension Transition for Contributions Made Subsequent to the Measurement Date. After making minor clarifying changes, the Board members voted unanimously to issue the Exposure Draft.
Minutes of Meetings, June 3, 2013
The Board reviewed a preballot draft of the Exposure Draft, Pension Transition for Contributions Made Subsequent to the Measurement Date, and provided clarifying changes. The Board then directed the project staff to prepare a ballot draft for consideration at the June meeting.
Minutes of Meetings, May 14–16, 2013
The Board discussed and tentatively agreed to modify transition guidance in Statement No. 68, Accounting and Financial Reporting for Pensions, to require that, at transition, an employer recognize a deferred outflow of resources for contributions made to a pension plan subsequent to the measurement date of the net pension liability and before the end of the prior reporting period, regardless of whether the amount of other deferred outflows of resources and deferred inflows of resources related to pensions can be determined. The Board also reviewed a draft of the Introduction, Standards, and Effective Date sections of a proposed Statement on this issue. The Board then directed the project staff to prepare a preballot draft for consideration at the June teleconference.
Pension Transition for Contributions Made Subsequent to the Measurement Date —Major Tentative Decisions to Date
Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, was issued in November 2013.