The US accounting rule maker, the Financial Accounting Standards Board (FASB), has voted to start research on possible changes to pensions accounting under US generally accepted accounting principles.

Any new accounting requirements could affect either traditional defined benefit accounting or the accounting regime for cash-balance pension plans.

Summing up the result of the board’s 29 January discussions, FASB chairman Russell Golden said: “There is no separate pension project at this time. We are going to put the presentation aspects within the [financial statement presentation] project, and we’re going to continue the research [into] cash-balance pension plans.”

During the same meeting, FASB members voted to launch a financial statement presentation project.

A statement issued by the board in the wake of that meeting said the FASB “would perform research” on pensions accounting and the FSP project.

In relation to the accounting for cash-balance plans, Golden noted that the board was “deferring decision on what to do on cash-balance plans – measurement versus disclosure – until more analysis is done”.

One board member in particular said he was troubled by the state of cash-balance-plan accounting.

Marc Siegal told the meeting: “Another thing this has highlighted is that there is zero transparency about cash-balance pension plans out there for us or investors.

“So, at a minimum, I would hope we get to a recommendation where there is increased disclosures about cash-balance pension plans so we all know what we’re talking about – because right now, we have no idea.”

Finally, FASB members voiced little appetite for carrying out any work on discount rates under US pensions literature.

The FASB chairman said the use of a current discount rate is what “gives investors what they need”.

Golden added that he was “not willing to come off that at this point in time”.

The US approach to DB pension accounting was set out in SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”.

The FASB codified these rules as ASC 715 in 2006.

Both the FASB and its international counterpart, the International Accounting Standards Board (IASB), have struggled in recent years to arrive at a satisfactory accounting regime for cash-balance plans.

FASB member Larry Smith said: “If we’re going to do it, let’s make sure we do it. We went through this 10 years ago – we spent a year researching this and went nowhere.”

His colleague Tom Linsmeier added: “I have a problem just standing down with this right now.

“This is the area in defined benefit pension plans that is growing most and having significant issues about recognition, measurement and perhaps other additional issues.

“And my concern is the ideas that ‘it’s hard, so let’s step down’.”

The IASB set out to tackle so-called contribution-based promises – a wider family of retirement plans than just cash-balance plans – in its 2008 discussion paper.

That effort ran into the sand and led eventually in narrower-scope amendments to International Accounting Standard 19, Employee Benefits.

More recently, the International Financial Reporting Standards Interpretations Committee called a halt to its work into contribution-based promises.

Critics of pensions accounting under US GAAP have pointed to a number of deficiencies in financial reporting they say must be fixed.

These include delayed recognition of gains and losses in profit or loss, presentation of net pension cost, accounting for cash-balance plans and discount rate assumptions.

Despite a formal programme to converge US GAAP and international standards in recent years, the FASB did not explore the option of matching the IASB’s recent net-interest approach amendments to IAS19.

Source: Investment & Pensions Europe