What’s New in Pension Disclosure for Nonpublic Entities?

By Ronald E. Carlson and Kate Mooney

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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.

Plan Assets

Revised SFAS 132 requires more specific information about the management and allocation of the plan assets.

The new required disclosures include the following:

  • The percentage of fair value of total plan assets for each major category of plan assets, such as below:

    Asset Category         2004       2003

    Equity Securities
    Debt Securities
    Real Estate
    Other Assets

  • 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.

Benefits Obligations

SFAS 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.

The 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.


SFAS 132 required disclosure of the funded status of the pension plan and both the employer and participant contributions.

The 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.

Interest Rate Assumptions

SFAS 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 other format.

The revised SFAS 132 still requires those disclosures, but specifies a tabular format to present the assumptions used to determine the benefit obligation:

Weighted average rate assumptions used to determine benefit obligations

                       2004         2003
Discount rate
Rate of compensation increase

As well as the assumptions used to determine the net benefit cost:

Weighted average rate assumptions used to determine net periodic pension cost

                      2004          2003

Discount rate
Expected long-term
return on plan assets
Rate of compensation increase

Note 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.

Measurement Dates

SFAS 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.

The Exhibit 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.

Ronald 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.




















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