Sentiment has been rising among financial market participants that pension accounting standards are confusing and lack a solid grounding in economic principles. Accordingly, at its November 10 meeting, the Financial Accounting Standards Board (FASB) voted unanimously to reconsider FASB Statement No. 87, Employers’ Accounting for Pensions, and FASB Statement No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, which generally covers retiree medical and life insurance plans. The FASB seeks to make accounting for postretirement benefits more “conceptually sound” and align U.S. standards more closely with international practice.
The FASB’s recommendation was for the project to proceed in two phases. Phase One would focus on the balance sheet, eliminating all smoothing of actuarial gains and losses in the funding position that flows into the other comprehensive income section of shareholder’s equity. FASB sources said they hope to have this revision in place for firms whose fiscal years end after September 30, 2006, so that the financial statements of most firms with December 31 fiscal year-ends will reflect the new standards in their 2006 annual reports. The FASB plans to release an exposure draft by March 2006, accept comments through June and possibly hold a roundtable in July.
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