SFAS 158 – Employers’ Accounting for Defined Benefit Pension and Other Post-Retirement Plans

The following summarizes SFAS 158 impact on financial statement presentation.

There are two primary changes in financial reporting as a result of SFAS 158 that will affect clients:

1. The over funded / under funded status of a Defined Benefit plan must be recorded as an asset / liability on the company’s balance sheet
2. The funded status of a plan must be measured as of a company’s reporting date

1. The over funded / under funded status of a Defined Benefit plan is measured as the difference between the plan assets at fair value and the projected benefit obligation (PBO).

For other post-retirement benefit plans, other than a pension plan, this is the difference between the plan assets at fair value and the accumulated post-retirement benefit obligation

.

The difference between the over/under funded status and what was recognized as a prepaid asset or accrued liability under the old rules is due primarily to including the estimated impact of future salary increases.

This information is obtained from an actuary’s report.

The over / under funded amount should be booked on the company’s balance sheet and recognized as other comprehensive income, net of tax.

An under funded amount should be recognized as a long-term liability, except in the unusual situation where total assets of the plan are less than the amount of benefits that will be paid to participants over the next 12 months. An over funded amount will always be recognized as a non-current asset. 

This must be applied prospectively, and is effective for all clients with years ending after 6/30/07 (essentially all clients going forward). Applied Prospectively means that prior year balances and statements are not adjusted for this change. The net amount of this change is reported in the accumulated other comprehensive income (OCI) section of equity, but not as a component of current year OCI.

2. The measurement date for the over / under funded status must be the reporting date for the Company. In other words, for clients with a calendar year plan, and a September fiscal year, they must have an actuarial evaluation performed mid year (at the reporting date) to value the over/ under funded status.

This is not effective until 12/31/08 (years ending after 12-15-08)

In the year of change, it is required to disclose:

• The incremental effect of applying SFAS 158 by line item (in the footnotes)
• It is not necessary to include SFAS 154 (accounting changes/ correction of an error) disclosures

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