New in Pension Disclosure for Nonpublic Entities?
Ronald E. Carlson and Kate Mooney
AUGUST 2005 - Companies
with defined benefit pension plans must be prepared to meet
the revised requirements of SFAS 132. In response to user
demands for better disclosure on this topic, the new requirements
provide more information about pension plan assets, obligations,
benefit payments, contributions, and net benefit cost. The
revision of SFAS 132 affects only the pension plan disclosures,
not the measurement or recognition of various items. The revision
does not eliminate any of the original SFAS 132 requirements,
but does add five additional disclosure requirements.
SFAS 132 requires more specific information about the management
and allocation of the plan assets.
new required disclosures include the following:
A narrative description of investment policies and strategies.
This should be specific to the entity, and include the
important policies followed by the entity with regard
to the plan asset investment.
A description of the basis used to determine the overall
expected long-term rate of return on assets. The basis
of the long-term return assumption is specific to the
entity, but is usually based on long-term rates of return
documented by research or other acceptable sources.
Additional asset categories, and information on specified
assets in each category. Plan sponsors are encouraged,
but not required, to make these disclosures.
132 required disclosure of the amount of the benefit obligation,
alongside the fair value of the plan assets, the plan’s
funding status, and the prepaid (accrued) benefit cost recognized
on the current balance sheet.
revised SFAS 132 requires even more information. The new
disclosures include the following:
The amount of the accumulated benefit obligation for all
defined benefit pension plans.
The benefits to be paid in each of the next five fiscal
years, and the aggregate of the expected benefits for
the next five fiscal years thereafter.
132 required disclosure of the funded status of the pension
plan and both the employer and participant contributions.
revised SFAS 132 goes further in requiring an estimate of
contributions to be paid to the plan during the next fiscal
year, in addition to the employer and participant contributions.
132 required disclosure of the weighted average assumptions
for discount rate, rate of compensation increase if the
plan is related to pay, and expected long-term rate of return
on plan assets. The format of the original disclosure was
not specified, and companies could use a narrative or any
revised SFAS 132 still requires those disclosures, but specifies
a tabular format to present the assumptions used to determine
the benefit obligation:
average rate assumptions used to determine benefit obligations
Rate of compensation increase
well as the assumptions used to determine the net benefit
average rate assumptions used to determine net periodic
return on plan assets
Rate of compensation increase
that disclosure of rate of compensation increase is necessary
only if the defined benefit is dependent on the amount of
pay received by the beneficiary.
132 required disclosure of the measurement dates used to
determine pension and other postretirement benefit measurements.
The revised SFAS 132 expands that disclosure to include
measurement dates for the majority of plan assets and benefit
obligations. Users will then know if that measurement is
affected by events after the measurement date but before
the date of the statements, such as a change in market returns
or interest rates.
compares the requirements for public and nonpublic entities
under both the original and the revised provisions of SFAS
132. The wording is closely adopted from the original pronouncements.
E. Carlson, PhD, CPA, and Kate Mooney, PhD,
CPA (inactive), are both professors in the Department
of Accounting, St. Cloud State University, St. Cloud, Minn.