Changes to the Disclosure Requirements for Defined Benefit Plans

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Michelle L. Steinbronn, CPA

In August of 2018, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2018-14, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans, as part of their disclosure framework project. The objective of the project is to improve the effectiveness of disclosures in the notes to the financial statements for employers that sponsor defined benefit pension or other postretirement plans. Several removals, modifications, and additions have been made to the defined benefit plans standard (Subtopic 715-20) under this ASU.

The following disclosures have been removed from Subtopic 715-20:

  • The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year;
  • The amount and timing of plan assets expected to be returned to the employer;
  • The disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law;
  • 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;
  • For nonpublic entities, 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. However, nonpublic entities will be required to disclose separately the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets; and
  • For public entities, the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for postretirement health care benefits.

The following disclosures have been added to Subtopic 715-20:

  • The weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates; and
  • An explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.

The guidance also clarifies disclosure requirements related to the disclosures for the projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets.

The guidance is effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021 for all other entities. Early adoption is permitted for all entities.

For more information and to download the full text of the ASU please visit www.fasb.org.