FASB Proposed Changes to Accounting for Pension and Other Postretirement Plan Expenses

The Financial Accounting Standards Board (FASB) has issued two exposure drafts that propose changes to the accounting standards for pension and other postretirement benefits covered under Accounting Standards Codification (ASC) Topic 715 and Subtopic 715-20. Neither exposure draft would change the rules for measuring the expense or cost, but would change the way they are reported on income statements and balance sheets.

One exposure draft, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" (Periodic Cost) (ASC Topic 715), would change the presentation of net periodic costs, so that the service cost must be shown separately from other components and provide that only the service cost can be capitalized. The other exposure draft, "Changes to the Disclosure Requirements for Defined Benefit Plans" (Disclosure) (ASC Subtopic 715-20), would change the disclosure of costs and expense in the financial statements of employers that sponsor defined benefit plans (pension plans and other postretirement benefit plans). FASB has requested responses to a series of questions posed in each of the exposure drafts.

The exposure draft for ASC Topic 715 may be found here, and ASC Subtopic 715-20 may be found here.

Comments are due by April 25, 2016 and may be submitted as follows:

Comments may also be submitted:

  1. For the Periodic Cost exposure draft by
    1. Emailing a written letter to director@fasb.org, File Reference No. 2016-200; or
    2. Sending written comments to "Technical Director, File Reference No. 2016-200, FASB, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116"; and
  2. For the Disclosure exposure draft by:
    1. Emailing a written letter to director@fasb.org, File Reference No. 2016-210
    2. Sending written comments to "Technical Director, File Reference No. 2016-210, FASB, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116."


Sponsors of defined benefit pension plans and other postretirement plans should review the proposed changes (and related questions) to determine if they wish to submit comments.


FASB has existing rules for the measurement of expenses for pension and other postretirement benefit plans, and rules for the disclosure of those items on financial statements. The purpose of the rules is to allow users of financial statements to understand the extent and nature of an entity's obligations for pension and other postretirement benefits.

Pension expense and other postretirement benefit expense are each composed of the following elements:

  1. Service cost,
  2. Interest cost,
  3. Return on plan assets,
  4. Amortization of any prior service cost or credit included in accumulated other comprehensive income,
  5. Gain or loss (including the effects of changes in assumptions), which includes, to the extent recognized, amortization of the net gain or loss included in accumulated other comprehensive income, and
  6. Amortization of any net transition asset or obligation existing at the date of initial application of Topic 715 and remaining in accumulated other comprehensive income.

Current accounting rules do not require that these elements be disaggregated or considered separately in determining an entity's income or financial position. Users of financial statements have indicated that it is difficult to use the information as currently presented to assess the true costs of an entity's benefit programs.


The exposure drafts would not change the rules for measuring the expense or cost, but would change the way they are reported on income statements and balance sheets. Both exposure drafts show the proposed changes to the relevant paragraphs of ASC Topic 715, which includes moving content to different paragraphs within that topic. The exposure drafts also show proposed corresponding changes to paragraphs in other ASC topics.

Periodic Cost (ASC Topic 715)

The Periodic Cost proposal would require that the service cost, which is the cost of benefits currently earned as a result of employment, be shown as a separate line item in the compensation costs of employment. If the entity reports income from operations separately, the service cost would be an expense against that income. This would allow users to get a good idea of the current costs of the benefit program and its effect on net operating income. The other elements of benefit expense could continue to be grouped together and would also be an expense against income. Also, only the service cost could be capitalized if it were appropriate to capitalize compensation costs, e.g., the production of inventory. FASB believes that the other costs represent investment decisions or adjustments from past periods and therefore are not costs associated with the creation of an asset eligible for capitalization.

FASB will determine the effective date of the changes after consideration of feedback from stakeholders, but indicates that the requirements regarding service cost will apply retroactively, meaning that the service cost must be disclosed as required for all years shown in any financial report.

Disclosure (ASC Subtopic 715-20)

The Disclosure proposal would change what is reported in a statement of financial positon regarding pension and other postretirement benefit costs. Specifically, the new requirements would eliminate the following items that are required under the current rules:

  1. The amount of the pension accumulated benefit obligation,
  2. The aggregate pension accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets,
  3. The amount and timing of plan assets expected to be returned to the entity,
  4. The disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law,
  5. Related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts, and significant transactions between the employer or related parties and the plan, and
  6. The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year.

In addition, for nonpublic entities (those that are not publicly traded), the reconciliation of the opening balances to the closing balances of plan assets measured on a recurring basis in Level 3 of the fair value hierarchy would be eliminated. However, nonpublic entities would be required to disclose the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets.

The exposure draft would add the following disclosures:

  1. A description of the nature of the benefits provided, the employee groups covered, and the type of benefit plan formula,
  2. The weighted average interest crediting rate for cash balance plans and other plans with a promised interest crediting rate,
  3. Quantitative and qualitative disclosures from ASC Topic 820, Fair Value Measurement, about assets measured at net asset value using a practical expedient,
  4. A narrative description of the reasons for significant gains and losses affecting the benefit obligation or plan assets,
  5. For nonpublic entities, the effects of a one-percentage-point change in assumed health care cost trend rates (this disclosure is currently required only for public entities), and
  6. Specify that disclosures about defined benefit pension and other postretirement plans should be disaggregated between domestic and foreign plans.

FASB has not yet decided upon an effective date for the proposed revisions and states that the effective date and whether to allow early adoption will be decided "after the Board considers stakeholder feedback on the proposed amendments." FASB notes, however, that when adopted, the revised disclosures will apply to all periods presented in a report, with the exception that the qualitative disclosures about plan assets measured at net asset value would be required beginning with the last period covered after adoption.

Cheiron consultants can help you understand the impact of the proposed changes.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.