INTRODUCTION:

Companies participating in multiemployer plans that provide pension and/or other postretirement benefits will soon face additional financial disclosure requirements if a FASB exposure draft issued on Sept. 1 is finalized. As a result, multiemployer plans are likely to face increased requests for financial and actuarial reports. However, the proposed change would keep the current requirement that an employer recognize as an expense the required contributions for the year to a multiemployer pension or other postretirement plan and recognize as a liability any past due contributions. Also, the exposure draft would not change the current rules requiring that an employer disclose estimated withdrawal liability if it is either probable or reasonably possible. The exposure draft would require footnote disclosure of additional information. Comments are due by November 1. The stated purpose of the proposed revisions is to provide information about:

1. The multiemployer plans with which the employer is involved,

2. The employer's participation in the multiemployer plan(s), and

3. Any effects on the employer's cash flows from its participation in the multiemployer plan(s).

EFFECTIVE DATE:

If adopted, the revised disclosure requirements will be effective for the employer's fiscal periods ending after December 15, 2010, except that employers will not be required to provide the information for prior periods. For privately held corporations, the effective date is fiscal periods ending after December 15, 2011. Comments are due by November 1, 2010 and should be addressed to: Technical Director, File Reference No. 1860-100.

Cheiron Observation: For a calendar fiscal year, the proposed changes would take effect for the year ending December 31, 2010.

REQUIRED DISCLOSURES

The proposal requires that the employer provide an extensive narrative about its involvement with multiemployer plans. The narrative must identify the number of multiemployer plans to which the employer contributes. It must separately identify plans that are fully funded and plans that are underfunded, as well as separately describing pension plans and other post-retirement plans.

In addition, plans that are material, which is not defined, must be individually identified, and pension plans that are endangered or critical must be placed in their own category. Plans that are not material individually, but would be material if grouped, must also be disclosed in the narrative, which must also contain extensive information about the plan's funding, the risks faced by the employer, the percentage of active and retired employees in the plan attributable to the employer, the employer's current and expected future contributions under any collective bargaining agreements, and whether the plan is endangered or critical. In addition, if withdrawal liability is probable or reasonably possible, the employer must follow the disclosure and accounting requirements for loss contingencies (Accounting Topic 450).

Cheiron Observation: An employer can obtain virtually all of the required information from its own records and from disclosures the plan is required to provide, either automatically, such as the Schedule R, or in response to a request from the employer pursuant to section 101(k) of the Employee Retirement Income Security Act, as amended, the annual funding notice required under ERISA §101(f), and the estimate of withdrawal liability required by ERISA §101(l). However, much of the information will be at least one year out-of-date, which must be disclosed as part of the narrative. The new disclosure rules require that if required information is not available, the employer must explain the reasons, which will be that certain information has not yet been produced by the multiemployer plan and the information disclosed or used for required disclosures is the most recent available.

CONCLUSION

As a result of the proposed disclosure requirements, multiemployer plans can expect an increase in requests for actuarial and financial reports and sensitivity tests pursuant to ERISA §101(k), as well as requests for updated withdrawal liability estimates. ERISA does not allow plans to charge more than reasonable costs for postage and copying to provide these reports, and the Department of Labor has indicated it believes the same limitations apply to charging for withdrawal liability estimates. However, the withdrawal liability estimate required by ERISA would relate to a withdrawal in the prior year, so if the employer wants an estimate of what its withdrawal liability would be in the current year, it will need to request an updated estimate. The question of whether a plan could charge for the cost of preparing an updated estimate has not yet been resolved, with some plan counsel believing that such a charge is permissible under the law.