FASB Issues New Disclosure of Requirements for Employers Participating in Multiemployer Plans

Introduction - The Financial Accounting Standards Board (FASB) has issued final revised standards for disclosure by employers that contribute to multiemployer plans. As expected, the new disclosures require substantially more information than the previous standard. What is most notable about the revised standards, however, is what FASB did not do; it did not require employers to disclose the estimated withdrawal liability for plans to which they contribute.1

Cheiron Observation: Despite its failure to require disclosure of estimated withdrawal liability, many employers with whom we have discussed the revised standard still believe that the additional disclosures will make it harder for them to obtain financing.

Applicability and Effective Date - The new disclosure standard applies to both publicly-traded and non-publicly-traded entities. The new standard applies to publicly traded entities beginning with statements for fiscal years ending after December 15, 2011, and applies to non-publicly traded entities beginning with fiscal years ending after December 15, 2012.

New Disclosures - In addition to requiring employers to report actual and accrued and unpaid contributions to multiemployer plans, the revised standard requires employers to disclose the following information:

1. General Disclosures
a. A narrative of both the general nature of multiemployer plans and how the risks of participating in a multiemployer plan differ from the risks associated with maintaining a single-employer plan (the example states that the employer's contributions can be used to provide benefits for other employer's employees, that if another contributing employer withdraws, the employer may become liable for funding such benefits, and if the employer withdraws, it may incur withdrawal liability); and
b. A description of the nature and effect of any significant changes that affect comparability of total employer contributions from period to period. Examples are a merger or divestiture, a change in the employer contribution rate, and a change in the number of employees covered.
2. Plan Specific Disclosures - For each significant multiemployer plan, in a tabular format when feasible, the:
a. Name of the plan;
b. The plan's employer identification number ("EIN");
c. The zone status of the plan under the Pension Protection Act (i.e., safe, endangered, or critical) along with the date of the plan year end to which the zone status relates and whether the plan used any extended amortization provisions that affect the calculation of zone status; 2
d. The expiration date of the collective bargaining agreement requiring contributions to the multiemployer plan, or, if more than one agreement, a range of dates accompanied by a description that identifies the significant collective bargaining agreements and helps investors understand their significance (e.g., employer's percentage of employees covered and percentage of contributions made under each agreement);
e. The employer's contributions;
f. Whether the employer's contributions represented more than 5% of total contributions to the plan as reported on the most recently available Form 5500. (The disclosure should state the year-end date to which the Form 5500 relates.)
g. As of the end of the most recent plan year presented in the disclosure:
i. Whether a funding improvement plan or rehabilitation plan had been implemented or was pending,
ii. Whether the employer paid a surcharge to the plan, and
iii. A description of any future minimum contributions required by collective bargaining agreements or law.

Cheiron Observation: The required information should be available from the disclosures that a pension plan is required to make to the employer under the law. Examples are the notice about zone status, the annual funding notice, and the annual summary furnished to each employer. In the event the information is not available, the revised standard provides an alternative mechanism for compliance. However, plan administrators may want to consider whether they will provide standard language to the employers for use in their disclosures.

For multiemployer plans that provide non-pension postretirement benefits, the revised disclosure includes only the contributions made, any changes in the business that affected the contributions such as a merger or employee layoffs, and a description of the nature of the benefits and types of employees covered (e.g., retirees, actives, etc.).

Cheiron consultants can assist plan administrators and employers in coping with the revised disclosure standards.

1While the revised standards do not require the disclosure of estimated withdrawal liability, existing standards, which still apply, require that if it is either probable or reasonably possible that either: a withdrawal would trigger a liability, or that employer contributions would be increased to maintain the level of benefits, then an additional disclosure provision applies (Topic 450).

2If the zone status is not available, the employer shall disclose, using the most recent information as to assets and accumulated benefit obligations, whether the plan is: (1) less than 65% funded: (2) between 65% and 80% funded; or (3) at least 80% funded.

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