Pension Plans

FASB ASC 715-30 is the primary source of GAAP in the pension area. Single-employer defined benefit plans are the most affected. However, multiemployer plans and defined contribution plans are also affected by some provisions. Defined contribution plans are the type more often found at not-for-profit organizations, although defined benefit plans are sometimes used. These plans are defined in the FASB ASC Master Glossary as follows:

1. Defined benefit pension plans. A defined benefit pension plan provides specified benefits to plan participants. The benefits are based on a variety of factors including a participant's age, years of service, and compensation.
2. Defined contribution pension plans. A defined contribution pension plan provides an individual account for each participant and specifies how contributions to the individual's account are to be determined. Unlike defined benefit plans, defined contribution plans do not define specific benefit amounts that participants are to receive. Instead, they provide benefits based solely on (a) the amount contributed to a participant's account, (b) the returns earned on the investment of those contributions, and (c) forfeitures of other participants' benefits that may be allocated to the participant's account. An Internal Revenue Code Section 403(b) plan, commonly offered by not-for-profit organizations, is an example of a defined contribution pension plan. In fact, not-for-profit organizations are far more likely to offer 403(b) plans than they are to offer defined benefit plans.

GAAP specifies the accrual basis of accounting for pension costs and focuses directly on the terms of the plan to assist in the recognition of compensation cost over the service period of the employees. It results in earlier recognition of significant liabilities and it recognizes a liability (or asset) in the case of plans that are underfunded or overfunded.

The principal emphasis of pension accounting requirements is the present value of the pension obligation, the fair value of plan assets, and the disclosure of the makeup of net pension costs and of the projected benefit obligation. The main accounting problems revolve around the amount to be expensed on the statement of activities and the amount to be accrued on the statement of financial position.

GAAP also has standards to be followed by employers of defined benefit pension plans when obligations are settled, plans are curtailed, or benefits are terminated.

Postemployment Benefits Other Than Pensions

Although there are some major differences in terminology and measurement, OPEB accounting basically follows the fundamental framework established for pension accounting and applies to all forms of postretirement benefits. However, in most cases, the material aspect will be the focus on postretirement health care benefits. FASB ASC 715-60 considers OPEB to be a form of deferred compensation and requires accrual accounting. The terms of the individual contract will govern the accrual of the employee's obligation for deferred compensation, and the cost should be attributed over the employee service periods until full eligibility is attained. The employer's obligation for OPEB should be fully accrued when the employee attains full eligibility for all expected benefits. Offering OPEB to employees is a very common benefit found at not-for-profit organizations.

Disclosure Standards

The GAAP disclosure requirements for pensions and OPEB are primarily contained in FASB ASC 715-20-50.

Net Periodic Pension Cost

It is assumed that a not-for-profit organization employer will continue to provide retirement benefits well into the future. The accounting for the plan's costs should be reflected in the financial statements and these amounts should not be discretionary. All pension costs should be accounted for in the statement of activities. No amounts should be charged directly to net assets.

The benefits earned and costs recognized over the employees' service period must be attributed by the pension plan's benefit formula. Net periodic pension cost consists of the sum of the following six components:

1. Service cost;
2. Interest cost on projected benefit obligation;
3. Actual return on plan assets;
4. Gain or loss;
5. Amortization of unrecognized prior service cost;
6. Amortization of unrecognized net assets or net obligation existing at the date of initial application of SFAS 87.

Elements of pension plans that affect the determination of the above components of pension cost and amounts to be shown on the balance sheet are the accumulated benefit obligation, the projected benefit obligation, and plan assets. Both obligations are the actuarial present value of benefits attributed by the formula to service prior to a given date. The accumulated benefit obligation does not include an assumption about future compensation levels, whereas the projected benefit obligation does include such an assumption. Pay-related, final-pay, or career-average-pay plans are examples of plans based on future compensation levels. These plans measure benefits based on service to date but include assumptions as to compensation increases, turnover, etc. In non-pay-related or flat-benefit plans, both obligations are the same.

ASU 2017-07 will require that an employer report the service cost component of benefit cost in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are not used, the line item or items in the income statement to present the other components of benefit cost should be disclosed.

ASU 2017-07 also only allows the service cost component to be eligible for capitalization when applicable.

ASU 2017-07 is effective for public business entities for annual periods beginning after December 15, 2017. For other entities, it is effective for annual periods beginning after December 15, 2018, which is when not-for-profit organizations would be required to adopt the new standard.

The expected progression of salary and wages is added to the accumulated benefit obligation to arrive at the projected benefit obligation. These amounts are provided by the actuary in a pension plan report.

Plan assets include contributions and asset earnings less benefits paid. They must be segregated and effectively restricted for pension benefits.

The amount of vested benefit obligation must be disclosed, but it does not directly figure in any of the net periodic pension cost calculations.

Service costs. This component of net periodic pension cost is the actuarial present value of benefits attributed during the current period. The plan's benefit formula is the key to attributing benefits to employee service periods. In most cases, this attribution is straightforward.

If the benefit formula is not straightforward, the accounting for pension service costs must be based on substantive commitment. In some cases, this means that if an employer has committed to make future amendments to provide benefits greater than those written in the plan, that commitment shall be the basis for the accounting. The relevant facts regarding that commitment shall be disclosed.

In other cases, a disproportionate share of benefits may be attributed to later years in order to delay vesting. In this situation, instead of the benefit formula, proportions or ratios need to be used to accumulate the total projected benefit in a manner that more equitably reflects the substance of the earning of the employee benefits. If the benefit formula does not specify a relationship between services and benefits, the following applies:

1. Includable in vested benefits (e.g., supplemental early retirement benefit)

   

2. Not includable in vested benefits (e.g., death or disability benefit)

   

Actuarial assumptions must reflect plan continuation, must be consistent as to future economic expectations, and must be the best estimate in regard to each individual assumption. It is not acceptable to determine that the aggregate assumptions are reasonable.

The discount rate used in the calculation of service costs should be the rate at which benefits could be settled. Examples include those rates in current annuity contracts, those published by the Pension Benefit Guaranty Corporation (PBGC), and those that reflect returns on high-quality, fixed-income investments.

Future compensation will be considered in the calculation of the service cost component to the extent specified by the benefit formula. To the degree considered, future compensation would include changes due to advancement, longevity, inflation, etc. Indirect effects and automatic increases specified by the plan also need to be considered. The effect of retroactive amendments is included in the calculation when the employer has contractually agreed to them.

The current period service cost component is found in the actuarial report.

Interest cost on projected benefit obligation. This component results from multiplying the assumed settlement discount rate by the projected benefit obligation as of the start of the year. The settlement rate should be determined by an annual review and represents the time value of money. The projected benefit obligation represents the discounted present value of employee benefits earned. The result is an accumulation of interest that increases the net periodic pension cost and the projected benefit obligation.

The interest cost component is calculated by multiplying the start of the year obligation balances by an assumed 8% settlement rate. This amount is found in the actuarial report.

Benefits paid to retirees are deducted from the above to arrive at the end of the year statement of position figures for the accumulated benefit obligation and the projected benefit obligation.

Benefits of $160 were paid to retirees during the current year. This amount is found in the report of the pension plan trustee.

Actual return on plan assets. This component is the difference between the fair value of plan assets at the end of the period and the fair value of the plan assets at the beginning of the period adjusted for contributions and payments during the period. Another way to express the result is that it is total (realized and unrealized) appreciation and depreciation of plan assets plus earnings from the plan assets.

The actual return on plan assets of $158, cash deposited with the trustee of $145, and benefits paid ($160) are amounts found in the report of the pension plan trustee. These items increase the plan assets to $1,543 at the end of the year. The actual return on plan assets is adjusted, however, to the expected long-term rate (9% assumed) of return on plan assets ($1,400 × 9% = $126). The difference, $32, is a return on asset adjustment and is deferred as a gain (loss). The return on asset adjustment is a component of net periodic pension cost and is discussed in the following section.

Gain or loss. Gains (losses) result from (1) changes in plan assumptions, (2) changes in the amount of plan assets, and (3) changes in the amount of the projected benefit obligation. Immediate recognition of these gains (losses) is not acceptable. Also, GAAP does not require that they be matched through recognition in net pension cost in the period of occurrence. Instead, unrecognized net gain (loss) is amortized if it meets certain criteria specified below.

Since actuarial cost methods are based on numerous assumptions (employee compensation, mortality, turnover, earnings of the pension plan, etc.), it is not unusual for one or more of these assumptions to be invalidated by changes over time. Adjustments will probably be necessary in order to bring prior estimates back in line with actual events. These adjustments are known as actuarial gains (losses). The accounting problem with the recognition of the actuarial adjustments is their timing. All pension costs must be charged to income. Thus, actuarial gains (losses) are not considered prior period adjustments but are considered changes in an estimate that should be recognized in current and future periods.

Plan asset gains (losses) result from both realized and unrealized amounts. They represent periodic differences between the actual return on assets and the expected return. The expected return is generated by multiplying the expected long-term rate of return and the market-related value of plan assets. This value is called market-related as opposed to fair value since it may be a calculated value. The purpose of allowing a calculated value was to enable the averaging or spreading of changes in fair value over not more than five years through a rational, systematic, and consistently applied method. Consistently applied means from year to year for each asset class (i.e., bonds, equities) since different classes of assets may have their market-related value calculated in a different manner (i.e., fair value in one case, moving average in another case). Thus, the market-related value may be fair value, but it also may be other than fair value if all or a portion results from calculation.

Plan asset gains (losses) include both (1) changes in the market-related value of assets (regardless of definition) from one period to another, and (2) any changes that are not yet reflected in market-related value (i.e., the difference between the actual fair values of assets and the calculated market-related values). Only the former changes are recognized and amortized. The latter changes will be recognized over time through the calculated market-related values. Differences in the experienced amount of projected benefit obligation from that assumed will also result in gain (loss).

Since gains (losses) from one period may offset gains (losses) from another period, adjustments should not be recognized in a single accounting period. If they were recognized all at once, the result could be either unusually large increases or decreases (or even elimination of) net pension costs during the period. The long-term nature of pension costs must be considered, and these gains (losses) are to be accumulated as an unrecognized net gain (loss). If this unrecognized net gain (loss), however, exceeds a “corridor” of 10% of the greater of the beginning balances of the market-related value of plan assets or the projected benefit obligation, a minimal amortization is required. The excess over 10% should be divided by the average remaining service period of active employees and included as a component of net pension costs. Average remaining life expectancies of inactive employees may be used if that is a better measure.

Net pension costs will include only expected return on plan assets. While actual return is disclosed, any difference that results between actual and expected is deferred through the gain (loss) component of net pension cost. If actual returns are greater than expected returns, net pension costs are increased and an unrecognized gain results. If actual returns are less than expected returns, net pension costs are decreased and an unrecognized loss results. If the unrecognized net gain (loss) is large enough, it is amortized. Over the long term, the expected return should be a fairly good indicator of performance, although in any given year an unusual or infrequent result may occur.

The expected long-term rate of return used to calculate the expected return on plan assets should be the average rate of return expected to provide for pension benefits. Present rates of return and expected future reinvestment rates of return should be considered in arriving at the rate to be used.

To summarize, the net periodic pension cost includes a gain (loss) component consisting of both of the following:

1. As a minimum, the portion of the unrecognized net gain (loss) from previous periods that exceeds the greater of 10% of the beginning balances of the market-related value of plan assets or the projected benefit obligation, usually amortized over the average remaining service period of active employees expected to receive benefits;
2. The difference between the expected return and the actual return on plan assets.

An accelerated method of amortization of unrecognized net gain (loss) is acceptable if it is applied consistently to both gains (losses) and if the method is disclosed. In all cases, at least the minimum amount discussed above must be amortized.

The return on asset adjustment of $32 is the difference between the actual return of $158 and the expected return of $126 on plan assets. The actuarial loss at the start of the year ($210 assumed) is amortized if it exceeds a “corridor” of the larger of 10% of the projected benefit obligation ($1,900) or 10% of the fair value of plan assets ($1,400). In this example, $20 ($210 – $190) is amortized by dividing the years of average remaining service (twelve years assumed), by a result rounded to $2. The straight-line method was used, and it was assumed that market-related value was fair value.

Amortization of unrecognized prior service cost. Prior service costs result from plan amendments and are accounted for as a change in estimate. These costs are measured at the amendment date by the increase in the projected benefit obligation. The service period of every active employee expected to receive benefits is to be determined, and then an equal amount of prior service cost should be assigned to each period. Consistent use of an accelerated amortization method is acceptable and must be disclosed if used.

If most of the plan's participants are inactive, remaining life expectancy should be used as a basis for amortization instead of remaining service life. If economic benefits will be realized over a shorter period than remaining service life, amortization of costs should be accelerated to recognize the costs in the periods benefited. If an amendment reduces the projected benefit obligation, unrecognized prior service costs should be reduced to the extent that they exist and any excess should be amortized as indicated above for benefit increases.

Unamortized prior service cost ($320) is amortized over the years of average remaining service (twelve years assumed) at the amendment date with a result rounded to $27. The straight-line method was used. These amounts are found in the actuarial report.

Amortization of unrecognized amount at date of initial SFAS 87 application. Any difference between the projected benefit obligation and the fair value of plan assets minus recognized prepaid or plus accrued pension cost at the beginning of the fiscal year of the initial SFAS 87 application is to be amortized. The amortization is to be on a straight-line basis over the average remaining active employee service period. If the average remaining service period is less than fifteen years, the employer may elect to use a fifteen-year period. If all or almost all of a plan's participants are inactive, the employer shall use the inactive participants' average remaining expectancy period.

The unamortized net asset ($30) existing at SFAS 87 application is amortized over the average service remaining at date of application (twelve years assumed) with a result rounded to $3. The straight-line method was used. These amounts are found in the actuarial report.

Summary of Net Periodic Pension Costs

The components that were identified in the aforementioned examples are summed to determine the one amount known as net periodic pension cost as follows:

One possible source of confusion is the return on plan assets ($158) and the unrecognized gain of $34 that total $124. The actual return on plan assets reduces pension cost. This reduction, however, is adjusted by increasing pension cost by the difference between actual and expected return of $32 and the amortization of the excess actuarial loss of $2 for a total of $34. The net result is to include the expected return of $126 ($158 – $32) less the amortization of the excess of $2 for a total of $124 ($158 – $34).

Recognition of the Funded Status of a Single-Employer Defined Benefit Postretirement Plan

A not-for-profit organization that sponsors one or more single-employer defined benefit plans (referred to as a not-for-profit employer) is required to:

1. Recognize the funded status of the benefit plan—which is measured as the difference between the fair value of the plan assets and the benefit obligation—in its statement of financial position.
   1. For a pension plan, the benefit is the projected benefit obligation.
   2. For any other postretirement benefit plan (such as a retiree health care plan), the benefit obligation is the accumulated postretirement benefit obligation.
2. Aggregate the statuses of all overfunded plans and recognize that amount as an asset in the statement of financial position. In addition, all of the statuses of the underfunded plans should be aggregated and recognized as a liability in the statement of financial position. This reporting of underfunded and overfunded plans on a gross basis makes sense because the “overfunded” assets of one plan cannot be used to offset the liabilities of an “underfunded” plan.

In addition, a not-for-profit employer that presents a classified statement of financial position should report the liability for an underfunded plan as a current liability, a noncurrent liability, or a combination of both. The current portion (which needs to be determined on a plan-by-plan basis) is the amount by which the actuarial present value of benefits included in the benefit obligation payable in the next twelve months (or the operating cycle if longer) exceeds the fair value of the plan assets. (Note that for a plan to report a current liability for all or part of its unfunded status would mean that it would be extremely underfunded—i.e., it wouldn't have enough assets to pay benefits for the next year.) Conversely, any asset recognized for an overfunded plan is always reported as a noncurrent asset.

3. Recognize as a separate line item or items within changes in unrestricted net assets (apart from expenses) the gains or losses and the prior service costs or credits that arise during the period but that are not recognized as components of net period benefit cost.
4. Reclassify to net periodic benefit cost a portion of the gain or loss and prior service costs or credits previously recognized in a separate line item (per 3. above) and a portion of the transition asset or obligation remaining from the initial application of SFAS 87 and 106. The contra adjustments should be reported in the same line item within changes in unrestricted net assets as the initially recognized amounts. (This reclassification prevents a double counting of these costs in the separate line item resulting from 3. above and the amortization costs, which are already part of net period pension cost.)
5. Apply the provisions of FASB ASC 740-10 to determine the income tax effects, if any, of the above items.

Measurement Date of Plan Assets and Benefit Obligations

A not-for-profit employer is required to measure plan assets and benefit obligations as of the date of its fiscal year-end statement of financial position, unless it meets one of the following exceptions:

• The plan is sponsored by a subsidiary that is consolidated using a fiscal period that differs from its parent's, as permitted by FASB ASC 958-810.
• The plan is sponsored by an investee that is accounted for using the equity method of accounting under FASB ASC 325-20.

Disclosure Requirements

A not-for-profit employer that sponsors one or more benefit plans is required to disclose the following information in the notes to the financial statements separately for pension plans and other postretirement benefit plans:

1. For each annual statement of activities presented, the net gain or loss and net prior service cost or credit recognized in the statement of activities apart from expenses. Those amounts are to be separated into amounts arising during the period and amounts reclassified as components of net periodic benefit costs of the period (unless they are reported separately on the statement of activities).
2. For each annual statement of activities presented, the net transition asset or obligation recognized as a component of net periodic benefit cost of the period (unless displayed separately on the statement of activities).
3. For each annual statement of financial position presented, the amounts that have not yet been recognized as components of net periodic benefit cost, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation.
4. The amounts of net gain or loss, net prior service cost or credit, and net transition asset or obligation that arose previously and are expected to be recognized as components of net periodic benefit cost over the fiscal year that follows the most recent annual statement of financial position presented.
5. The amount and timing of any plan assets expected to be returned to the not-for-profit employer during the twelve-month period, or operating cycle if longer, that follows the most recent annual statement of financial position presented.

In August 2018, the FASB issued ASU 2018-14 Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20) Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. As part of its disclosure framework project, the FASB reviewed the disclosure requirements for defined benefit pension and OPEB plans and decided to eliminate some requirements and add some additional requirements. The following disclosure requirements were eliminated:

1. The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year (not applicable to not-for-profit organizations, since they don't report other comprehensive income).
2. The amount and timing of plan assets expected to be returned to the employer.
3. The disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law.
4. 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.
5. 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.
6. For public entities, the effects of a one-percentage-point change in assumed health care cost trend rates on (a) the aggregate of the service and interest cost components of net periodic benefit costs and (b) the benefit obligation for postretirement health care benefits.

The following disclosure requirements are added:

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

ASU 2018-14 also clarifies that the following information for defined benefit pension plans should be disclosed:

1. The projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets;
2. The accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets.

ASU 2018-14 will be effective for not-for-profit organizations for fiscal years ending after December 15, 2021.

Other Pension Considerations

If an entity has more than one plan, pension accounting provisions should be separately applied to each plan. Offsets or eliminations are not allowed unless there clearly is the right to use the assets in one plan to pay the benefits of another plan.

If annuity contracts and other insurance contracts that are equivalent in substance are valid and irrevocable, if they transfer significant risks to an unrelated insurance company (not a captive insurer), and if there is no reasonable doubt as to their payment, they should be excluded from plan assets and their benefits should be excluded from the accumulated benefit obligation and from the projected benefit obligation. Most other contracts are not considered annuities for GAAP pension accounting purposes. If a plan's benefit formula specifies coverage by nonparticipating annuity contracts, the service component of net pension costs is the cost of those contracts. In the case of a participating annuity contract, the cost of the participation right is to be recognized as an asset and measured annually at its fair value. If fair value is unestimable, it should be systematically amortized and carried at amortized cost (not to exceed net realizable value). Benefits provided by the formula beyond those provided by annuities should be accounted for in the usual pension accounting manner. All other insurance contracts are considered investments and are usually measured at cash surrender value, conversion value, contract value, or some equivalent.

In the typical defined contribution plan, the contribution is derived from a formula, and that amount should be the expense for that year. Benefits are generally paid from the pool of accumulated contributions. If, however, the defined contribution plan has defined benefits, the provision is calculated in the usual manner.

Participation in a multiemployer plan (two or more unrelated employers contribute) requires that the contribution for the period be recognized as net pension cost and that any contributions due and unpaid be recognized as a liability. Assets in this type of plan are usually commingled and are not segregated or restricted. A board of trustees usually administers these plans, and multiemployer plans are generally subject to a collective-bargaining agreement. If there is a withdrawal from this type of plan and if an arising obligation is either probable or reasonably possible, contingency accounting rules apply.

Some plans are, in substance, a pooling or aggregation of single-employer plans and are ordinarily without collective-bargaining agreements. Contributions are usually based on a selected benefit formula. These plans are not considered multiemployer, and the accounting is based on the respective interest in the plan.

Non-US pension arrangements. The terms and conditions that define the amount of benefits and the nature of the obligation determine the substance of a non-US pension arrangement. If they are, in substance, similar to pension plans, GAAP pension accounting applies.

Business combinations. When an entity is purchased (APB 16) that sponsors a single-employer defined benefit plan, the purchaser must assign part of the purchase price to an asset if plan assets exceed the projected benefit obligation, or to a liability if the projected benefit obligation exceeds plan assets. The projected benefit obligation should include the effect of any expected plan curtailment or termination. This assignment eliminates any existing unrecognized components, and any future differences between contributions and net pension cost will affect the asset or liability recognized when the purchase took place.

Plan Settlements and Curtailments

FASB ASC 715-20 describes the accounting to be followed by obligors when all or part of defined benefit pension plans have been settled or curtailed. It establishes employer accounting procedures in the case of benefits offered when employment is terminated.

Settlements include both the purchase of nonparticipating annuity contracts and lump-sum cash payments. The following three criteria must all be met in order to constitute a pension obligation settlement:

1. Must be irrevocable;
2. Must relieve the obligor of primary responsibility;
3. Must eliminate significant risks associated with elements used to effect it.

A defeasance strategy does not constitute a settlement.

Under an annuity contract settlement, an unrelated insurance company unconditionally accepts an obligation to provide the required benefits. The following criteria must be met for this type of settlement:

1. Must be irrevocable;
2. Must involve transfer of material risk to the insurance company.

There can be no reasonable doubt as to the ability of the insurance company to meet its contractual obligation. The substance of any participating annuity contract must relieve the employer of most of the risks and rewards or it does not meet the criteria.

Curtailments include early discontinuance of employee services or cessation or suspension of a plan. Additional benefits may not be earned although future service time may be counted toward vesting. Curtailments must meet the following criteria:

1. Must materially diminish present employees' future service; or
2. Must stop or materially diminish the accumulation of benefits by a significant number of employees.

A curtailment and a settlement can occur separately or together.

Settlements. If the entire projected benefit obligation is settled, any unrecognized net gain (loss) plus any remaining unrecognized net asset existing when SFAS 87 was initially applied is immediately recognized. A pro rata portion is used in the case of partial settlement. If the obligation is settled by purchasing participating annuities, the cost of the right of participation is deducted from the gain (but not from the loss) before recognition.

If the total of the interest cost and service cost components of periodic pension cost is greater than or equal to the settlement costs during a given year, the recognition of the above gain (loss) is not required, but is permitted. However, a consistent policy must be followed in this regard. The settlement cost is generally the cash paid or the cost of nonparticipating annuities purchased or the cost of participating annuities reduced by the cost of the right of participation.

Curtailments. A curtailment results in the elimination of future years of service. The pro rata portion of any (1) unrecognized cost of retroactive plan amendments, and (2) remaining unrecognized net obligation existing when SFAS 87 was initially applied that is associated with the eliminated years of service is immediately recognized as a loss.

If curtailment results in a decrease in the projected benefit obligation, a gain is indicated. An increase in the projected benefit obligation (excluding termination benefits) indicates a loss. This indicated gain (loss) is then netted against the loss from unrecognized prior service cost recognized in accordance with the preceding paragraph. The net result is the curtailment gain or curtailment loss. This gain (loss) is accounted for as provided in FASB ASC 450. A gain is recognized upon actual employee termination or plan suspension. A loss is recognized when both the curtailment is probable and the effects are reasonably estimable.

After the curtailment gain (loss) is calculated, any remaining unrecognized net asset existing when SFAS 87 was initially applied is transferred from that category and combined with the gain (loss) arising after SFAS 87 application. It is subsequently treated as a component of the new gain (loss) category.

Termination benefits. Termination benefits are accounted for in accordance with FASB ASC 450. Special short time period benefits require that a loss and a liability be recognized when the offer is accepted and the amount can be reasonably estimated. Contractual termination benefits require that a loss and a liability be recognized when it is probable that employees will receive the benefits and the amount can be reasonably estimated. The cost of these benefits is the cash paid and the present value of future payments. Termination benefits and curtailments can occur together.

Segment disposal. Gains (losses), as calculated in this section, that result because of a disposal of a business segment should be recognized according to the provisions of FASB ASC 225-20.

Disclosures. In the case of all (including segment disposal) gains (losses) calculated, the obligor must include in the disclosure (1) a description of the nature of the event, and (2) the amount of gain (loss) recognized.

Postretirement Benefits Other Than Pensions (OPEB)

Many not-for-profit organizations offer postretirement benefits other than pensions and must comply with FASB ASC 715-60. This is a very common benefit of not-for-profit organizations, far more popular than defined benefit pension plans. ASC 715-60 provides the requirements for employers' accounting for other (than pension) postretirement employee benefits (OPEB). This standard prescribes a single method for measuring and recognizing an employer's accumulated postretirement benefit obligation (APBO). It applies to all forms of postretirement benefits, although the most material benefit is usually postretirement health care. It uses the fundamental framework used in GAAP pension accounting. To the extent that the promised benefits are similar, the accounting provisions are similar. Only when there is a compelling reason is the accounting different.

GAAP distinguishes between the substantive plan and the written plan. Although the two are generally the same, the substantive plan (the one understood as evidenced by past practice or by communication of intended changes) is the basis for the accounting if it differs from the written plan.

FASB ASC 715-60 focuses on accounting for a single-employer plan that defines the postretirement benefits to be provided. A defined benefit postretirement plan defines benefits in terms of (1) monetary amounts, or (2) benefit coverage to be provided. Postretirement benefits include tuition assistance, legal services, day care, housing subsidies, health care (probably the most significant), and other benefits. The amount of benefits usually depends on a benefit formula. OPEB may be provided to current employees, former employees, beneficiaries, and covered dependents. This standard applies to settlement of the APBO and to curtailment of a plan as part of a special termination benefit offer. It also applies to deferred compensation contracts with individuals. Taken together, these contracts are equivalent to an OPEB plan. FASB ASC 715-60 does not apply to benefits provided through a pension plan. If part of a larger plan with active employees, the OPEB shall be segregated and accounted for in accordance with this standard. If not materially different, estimates, averages, and computational shortcuts may be used.

The basic tenet is that accrual accounting is better than cash basis accounting. Recognition and measurement of the obligation to provide OPEB is required in order to provide relevant information to financial statement users. Although funding and cash flow information is incorporated into the statement, the overall liability is the primary focus.

The standard attempts, in accordance with the terms of the substantive plan, to account for the exchange transaction that takes place between the employer, who is ultimately responsible for providing OPEB, and the employee who provides services, in part at least, to obtain those OPEB. GAAP requires that the liability for OPEB be fully accrued when the employee is fully eligible for all of the expected benefits. The fact that the employee may continue to work beyond this date is not relevant since the employee has already provided the services in order to earn the OPEB.

OPEB are considered to be deferred compensation earned in an exchange transaction during the time periods that the employee provides services. The expected cost generally should be attributed in equal amounts (unless the plan attributes a disproportionate share of benefits to early years) over the periods from the employee's hiring date (unless credit for the service is only granted from a later date) to the date that the employee attains full eligibility for all benefits expected to be received. This accrual should be followed even if the employee provides service beyond the date of full eligibility.

Accounting for Postretirement Benefits

The expected postretirement benefit obligation (EPBO) is the actuarial present value (APV) as of a specific date of the benefits expected to be paid to the employee, beneficiaries, and covered dependents. Measurement of the EPBO is based on the following:

1. Expected amount and timing of future benefits;
2. Expected future costs;
3. Extent of cost sharing (contributions, deductibles, coinsurance provisions, etc.) between employer, employee, and others (i.e., government). The APV of employee contributions reduces the APV of the EPBO. Obligations to return employee contributions, plus interest if applicable, should be recognized as a component of EPBO.

The EPBO includes an assumed salary progression for a pay-related plan. Future compensation levels should be the best estimate after considering the individual employees involved, general price levels, seniority, productivity, promotions, indirect effects, etc.

The APBO is the APV as of a specific date of all future benefits attributable to service by an employee to that date. It represents the portion of the EPBO earned to date. After full eligibility is attained, the APBO equals the EPBO.

The APBO also includes an assumed salary progression for a pay-related plan. Thus, this term is more comparable to the projected benefit obligation (PBO) in pension accounting. The accumulated benefit obligation in pension accounting has no counterpart in FASB ASC 715-60.

Net periodic postretirement benefit costs include the following components:

1. Service cost—APV of benefits attributable to the current period (i.e., the portion of the EPBO earned this period);
2. Interest cost—interest on the APBO;
3. Actual return on plan assets;
4. Gain or loss;
5. Amortization of unrecognized prior service cost;
6. Amortization of the transition asset or obligation.

The transition obligation is the unrecognized and unfunded APBO for all of the participants in the plan. This obligation can either (1) be recognized immediately as the effect of an accounting change, subject to certain limitations, or (2) be recognized on a delayed basis over future service periods with disclosure of the unrecognized amount. The delayed recognition has to result in, at least, as rapid a recognition as would have been recognized on a pay-as-you-go basis.

Service costs and interest costs are defined and measured in the same manner as pension accounting. However, under FASB ASC 715-60, interest increases the APBO, while under pension accounting, interest increases the PBO.

A single method is required to be followed in measuring and recognizing the net periodic cost and the liability involved. That method attributes the EPBO to employee service rendered to the full eligibility date.

Assumptions. FASB ASC 715-60 requires the use of explicit assumptions. Each should be the best estimate available of the plan's future experience, solely with regard to the individual assumption under consideration. Plan continuity can be presumed, unless there is evidence to the contrary. Principal actuarial assumptions include discount rates, present value factors, retirement age, participation rates (contributory plans), salary progression (pay-related plans), and probability of payment (turnover, dependency status, mortality). Present value factors for health care OPEB include cost trend rates, Medicare reimbursement rates, and per capita claims cost by age.

Current interest rates, as of the measurement date, should be used for discount rates in present value calculations. Examples include high-quality, fixed-income investments with similar amounts and timing and interest rates at which the postretirement benefit obligations could be settled. The EPBO, APBO, service cost, and interest cost components use assumed discount rates.

The expected long-term rate of return on plan assets should be the average rate of earnings on contributions during the period and on qualifying existing plan assets. Current returns on plan assets and reinvestment returns should be given consideration in arriving at the rate to be used. Related income taxes, if applicable, should reduce the rate. Expected return on plan assets and the market-related value of plan assets use this rate in their calculation.

Explanations

1. EPBO (expected postretirement benefit obligation) is usually determined by an actuary, although it can be calculated if complete data is available.
2. APBO is calculated using the EPBO. Specifically, it is EPBO × (Years of service/Total years when fully eligible).
3. The unrecognized transition obligation (UTO) is the APBO at 12/31/20X0, since there are no plan assets to be deducted. The $226,332 can be amortized over the average remaining service to retirement of 14.17 (85/6) years or an optional period of twenty years, if longer. The Smart School selected the twenty-year period of amortization.
4. Note that Employee F has attained full eligibility for benefits and yet plans to continue working.
5. Note that the 20X0 table on the previous page is used in the calculation of the 20X1 components of OPEB cost that follows.

After the establishment of the UTO, the next step is to determine the benefit cost for the year ended December 31, 20X1. This calculation follows the pension accounting framework. The discount rate is assumed to be 10%.

Explanations

1. Service cost calculation uses only employees not yet fully eligible for benefits.

2. Interest cost is the 12/31/20X0 APBO of $226,332 × 10% = $22,633.
3. There are no plan assets, so there is no return.
4. There is no gain (loss) since there are no changes yet.
5. There is no unrecognized prior service cost initially.
6. Amortization of UTO is the 12/31/20X0 UTO of $226,332/20-year optional election = $11,317.

After calculation of the 20X1 benefit cost, the next step is to project the EPBO and APBO for December 31, 20X1. Assuming no changes, it is based on the December 31, 20X0, actuarial measurement and it is calculated as shown earlier in the determination of the UTO.

Changes in experience or assumptions will result in gains (losses). The gain (loss) is measured by the difference resulting in the APBO or the plan assets from that projected. However, except for the effects of a decision to temporarily deviate from the substantive plan, these gains or losses have no impact in the year of occurrence. They are deferred and amortized. Amortization of unrecognized net gain (loss) is included as a component of net postretirement cost for a year if, as of the beginning of the year, it exceeds 10% of the greater of the APBO or the market-related value of plan assets. The minimum amortization is the excess divided by the remaining average service period of active plan participants. A systematic method of amortization that amortizes a greater amount, is applied consistently to both gains and losses, and is disclosed, may also be used. If gains (losses) are recognized immediately, special rules of offsetting may be required.

FASB ASC 712-10. Uses the conditions of FASB ASC 710-10 to accrue an obligation for postemployment benefits other than pensions if employees' rights accumulate or vest, payment is probable, and the amount can be reasonably estimated. If these benefits do not vest or accumulate, FASB ASC 450 applies. If neither FASB ASC 712-10 nor FASB ASC 450 is applicable because the amount is not reasonably estimated, this fact must be disclosed.

Deferred compensation contracts. If the aggregate deferred compensation contracts with individual employees are equivalent to a pension plan, the contracts should be accounted for according to GAAP pension accounting. All other deferred compensation contracts should be accounted for according to FASB ASC 710-10.

FASB ASC 715-60 states that the terms of the individual contract will govern the accrual of the employee's obligation for deferred compensation and the cost should be attributed over the employee service period until full eligibility is attained. Per FASB ASC 710-10, the amount to be accrued should not be less than the present value of the estimated payments to be made. This estimated amount should be accrued in a systematic and rational manner. When elements of both current and future employment are present, only the portion attributable to the current services should be accrued. All requirements of the contract, such as the continued employment for a specified period and availability for consulting services and agreements not to compete after retirement, need to be met in order for the employee to receive future payments.

One benefit that may be found in a deferred compensation contract is the period of payments to employees or their beneficiaries for life, with provisions for a minimum lump-sum settlement in the event of early death of one or all of the beneficiaries. The estimated amount to be accrued should be based on the life expectancy of each individual concerned or on the estimated cost of an annuity contract, not on the minimum amount payable in the event of early death.

Full Disclosures

Public entities and electing nonpublic entities should provide the full disclosures described in this section. However, see “Reduced Disclosure Requirements for Nonpublic Entities” later in this chapter for discussion of the status of not-for-profit organizations with publicly traded securities. Those entities would be required to provide full disclosures.

Employers that sponsor one or more defined benefit pension plans or one or more defined benefit postretirement plans are required to provide the following:

1. A reconciliation of beginning and ending balances of the benefit obligation showing separately, where applicable, the effects during the period attributable to each of the following:
   1. Service cost;
   2. Interest cost;
   3. Contributions by plan participants;
   4. Actuarial gains and losses;
   5. Foreign currency exchange rate changes;
   6. Benefits paid;
   7. Plan amendments;
   8. Business combinations;
   9. Divestitures;
   10. Curtailments;
   11. Settlements;
   12. Special termination benefits.

   (For purposes of these disclosures, the benefit obligation for defined benefit pension plans is the projected benefit obligation and for defined benefit postretirement plans is the accumulated postretirement benefit obligation.)

2. A reconciliation of beginning and ending balances of the fair value of plan assets showing separately, where applicable, the effects during the period attributable to each of the following:
   1. Actual return on plan assets;
   2. Foreign currency exchange rate changes;
   3. Contributions by the employer;
   4. Contributions by plan participants;
   5. Benefits paid;
   6. Business combinations;
   7. Divestitures;
   8. Settlements.
3. The funded status of the plans, the amounts not recognized in the statement of financial position, and the amounts recognized in the statement of financial position, including:
   1. The amount of any unamortized prior service cost;
   2. The amount of any unrecognized net gain or loss, including asset gains and losses not yet reflected in market-related value;
   3. The amount of any remaining unamortized, unrecognized net obligation or net asset existing at the initial date of application of SFAS 87 or SFAS 106;
   4. The net pension or other postretirement benefit prepaid assets or accrued liabilities;
   5. Any intangible asset and the amount of accumulated other comprehensive income recognized. (For not-for-profit organizations, all changes in net assets flow through the statement of activities, so the amount reported as comprehensive income would be an equivalent amount that would have been reported in the statement of activities.)
4. Information about plan assets:
   1. For each major category of plan assets, which shall include, but is not limited to, equity securities, debt securities, real estate, and all other assets, the percentage of the fair value of total plan assets held as of the measurement date used for each statement of financial position presented.
   2. A narrative description of investment policies and strategies, including target allocation percentages or range of percentages for each major category of plan assets

      presented on a weighted-average basis as of the measurement date(s) of the latest statement of financial position presented, if applicable, and other factors that are pertinent to an understanding of the policies or strategies, such as investment goals, risk management practices, permitted and prohibited investments including the use of derivatives, diversification, and the relationship between plan assets and benefit obligations.

   3. A narrative description of the basis used to determine the overall expected long-term rate-of-return-on-assets assumption, such as the general approach used, the extent to which the overall rate-of-return-on-assets assumption was based on historical returns, the extent to which adjustments were made to those historical returns in order to reflect expectation of future returns, and how those adjustments were determined.
   4. Disclosure of additional asset categories and additional information about specific assets within a category is encouraged if that information is expected to be useful in understanding the risks associated with each asset category and the overall expected long-term rate of return on assets.
5. For defined benefit pension plans, the accumulated benefit obligation.
6. The benefits (as of the date of the latest statement of financial position presented) expected to be paid in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter. The expected benefits should be estimated based on the same assumptions used to measure the company's benefit obligation at the end of the year and should include benefits attributable to estimated future employee service.
7. The employer's best estimate, as soon as it can reasonably be determined, of contributions expected to be paid to the plan during the next fiscal year beginning after the date of the latest statement of financial position presented. Estimated contributions may be presented in the aggregate combining (1) contributions required by funding regulations or laws, (2) discretionary contributions, and (3) noncash contributions.
8. The amount of net periodic benefit cost recognized, the expected rate of return on plan assets for the period, the amortization of the unrecognized transition obligation or transition asset, the amount of recognized gains and losses, the amount of prior service cost recognized, and the amount of gain or loss recognized due to a settlement or curtailment.
9. The amount included within comprehensive income (changes in net assets for not-for-profit organizations) for the period arising from a change in the additional minimum pension liability recognized pursuant to SFAS 87, paragraph 37.
10. On a weighted-average basis, the following assumptions used in the accounting for plans:
    1. Assumed discount rate;
    2. Rate of compensation increase (for pay-related plans);
    3. Expected long-term rate of return on plan assets specifying in a tabular format, the assumptions used to determine the benefit obligation and the assumptions used to determine net benefit cost.
11. The measurement date(s) used to determine pension and other postretirement benefit measurements for the pension plans and other postretirement benefit plans that make up at least the majority of plan assets and benefit obligations.
12. The assumed health care cost trend rate(s) for the next year used to measure the expected cost of benefit covered by the plan (gross eligible charges) and a general description of the direction and pattern of change in the assumed trend rates thereafter, together with the ultimate trend rate(s) and when that rate is expected to be achieved.
13. The effect of a one-percentage-point increase and the effect of a one-percentage-point decrease in the assumed health care cost trend rates on:
    1. The aggregate of the service and interest cost components of net periodic postretirement health care benefit cost;
    2. The accumulated postretirement benefit obligation for health care benefits.

    (For purposes of this disclosure, all other assumptions are held constant, and the effects are measured based on the substantive plan that is the basis of accounting.)

14. Where applicable, the amounts and types of securities of the employer and related parties included in plan assets, the approximate amount of future annual benefits of plan participants covered by insurance contracts issued by the employer or related parties, and any significant transactions between the employer or related parties and the plan during the period.
15. Where applicable, any alternative amortization method used to amortize prior service amounts or unrecognized net gains and losses.
16. Where applicable, any substantive commitment, such as past practice or a history or regular benefit increases, used as the basis for accounting for the benefit obligation.
17. Where applicable, the cost of providing special or contractual termination benefits recognized during the period and a description of the nature of the event.
18. An explanation of any significant change in the benefit obligation or plan assets not otherwise apparent in the other disclosures provided.

In September 2011, the FASB issued ASU 2011-9, Compensation—Retirement Benefits—Multiemployer Plans (Subtopic 715-80) Disclosures about an Employer's Participation in a Multiemployer Plan, which will significantly increase the disclosures that are required when an organization participates in a multiemployer pension plan, as well as some less onerous changes to disclosures when an organization participates in a multiemployer plan that provides postretirement benefits other than pensions.

The FASB issued ASU 2011-9 to address concerns on the lack of transparency about an employer's participation in a multiemployer pension plan. A unique characteristic of a multiemployer plan is that assets contributed by one employer may be used to provide benefits to employees of other participating employers. This is because the assets contributed by an employer are not specifically earmarked only for its employees. If a participating employer fails to make its required contributions, the unfunded obligations of the plan may be borne by the remaining participating employers. Similarly, in some cases, if an employer chooses to stop participating in a multiemployer plan, the withdrawing company may be required to pay to the plan a final payment (the withdrawal liability). The disclosure requirements are as follows:

An employer shall apply the provisions of Topic 450 to its participation in a multiemployer plan if it is either probable or reasonably possible that either of the following would occur:

1. An employer would withdraw from the plan under circumstances that would give rise to an obligation.
2. An employer's contribution to the fund would be increased during the remainder of the contract period to make up a shortfall in the funds necessary to maintain the negotiated level of benefit coverage (a maintenance of benefits clause).

Multiemployer Plans That Provide Pension Benefits

An employer shall provide the disclosures listed below in the annual financial statements. The disclosures of the employer's contributions made to the plan include all items recognized as net pension costs. The disclosure based on the most recently available information shall be the most recently available through the date at which the employer has evaluated subsequent events.

1. An employer that participates in a multiemployer plan that provides pension benefits shall provide a narrative description both of the general nature of the multiemployer plans that provide pension benefits, and of the employer's participation in the plans that would indicate how the risk of participating in these plans is different from single-employer plans.
2. When feasible, the information required by this paragraph shall be provided in a tabular format. Information that requires greater narrative description may be provided outside the table. For each individually significant multiemployer plan that provides pension benefits, an employer shall disclose the following:
   1. Legal name of the plan.
   2. The plan's Employer Identification Number and, if available, its plan number.
   3. For each statement of financial position presented, the most recently available certified zone status provided by the plan, as currently defined by the Pension Protection Act of 2006 or a subsequent amendment of that act. The disclosure shall specify the date of the plan's year-end to which the zone status relates and whether the plan has utilized any extended amortization provisions that affect the calculation of the zone status. If the zone status is not available, an employer shall disclose, as of the most recent date available, on the basis of the financial statements provided by the plan, the total plan assets and accumulated benefit obligations, whether the plan was:
      1. Less than 65% funded;
      2. Between 65% and 80% funded;
      3. At least 80% funded.
   4. The expiration date(s) of the collective bargaining agreement(s) requiring contributions to the plan, if any. If more than one collective bargaining agreement applies to the plan, the employer shall provide a range of the expiration dates of those agreements, supplemented with a qualitative description that identifies the significant collective bargaining agreements within that range as well as other information to help investors understand the significance of the collective bargaining agreements and when they expire (for example, the portion of employees covered by each agreement or the portion of contributions required by each agreement).
   5. For each period that a statement of income (statement of activities for nonpublic entities) is presented:
      1. The employer's contribution made to the plan.
      2. Whether the employer's contribution represents more than 5% of total contributions to the plan, as indicated in the plan's most recently available annual report (Form 5500 for US plans). The disclosure shall specify the year-end date of the plan to which the annual report relates.
   6. As of the end of the most recent annual period presented:
      1. Whether a funding improvement plan or rehabilitation plan (for example, as those terms are defined by the Employment Retirement Income Security Act of 1974) had been implemented or was pending;
      2. Whether the employer paid a surcharge to the plan;
      3. A description of any minimum contribution(s) required for future periods by the collective bargaining agreement(s), statutory obligations, or other contractual obligations, if applicable.
   7. Factors other than the amount of the employer's contribution to a plan, for example, the severity of the underfunded status of the plan, that may need to be considered when determining whether a plan is significant.
3. An employer shall provide a description of the nature and effect of any significant changes that affect comparability of total employer contributions from period to period, such as:
   1. A business combination or a divestiture;
   2. A change in the contractual employer contribution rate;
   3. A change in the number of employees covered by the plan during each year.
4. The requirements above assume that the other information about the plan is available in the public domain. For example, for US plans, the plan information in Form 5500 is publicly available. In circumstances in which plan-level information is not available in the public domain, an employer shall disclose, in addition to the requirements listed, the following information about each significant plan:
   1. A description of the nature of the plan benefits;
   2. A qualitative description of the extent to which the employer could be responsible for the obligations of the plan, including benefits earned by employees during employment with another employer;
   3. Other quantitative information, to the extent available, as of the most recent dates available, to help users understand the financial information about the plan, such as total plan assets, actuarial present value of accumulated plan benefits, and total contributions received by the plan.
5. If the quantitative information in 2.c., 2.e.(2), or 4.c. cannot be obtained without undue cost and effort, that quantitative information may be omitted and the employer shall describe what information has been omitted and why. In this case, the employer shall also provide any qualitative information as of the most recent date available that would help users understand the financial information that otherwise is required to be disclosed about the plan.
6. Disclosures about multiemployer plans that are subject to the guidance in the preceding paragraph shall be included in a separate section of the tabular disclosure required above.
7. In addition to the information about the significant multiemployer plans that provide pension benefits required above, an employer shall disclose in a tabular format for each annual period for which a statement of income or statement of activities is presented, both of the following:
   1. Its total contributions made to all plans that are not individually significant;
   2. Its total contributions made to all plans.

Multiemployer Plans That Provide Postretirement Benefits Other Than Pensions

An employer shall disclose the amount of contributions to multiemployer plans that provide postretirement benefits other than pensions for each annual period for which a statement of income or statement of activities is presented. An employer may disclose total contribution to multiemployer plans without disaggregating the amounts attributable to pension plans and other postretirement benefit plans.

The disclosures shall include a description of the nature and effect of any changes that affect comparability of total employer contributions from period to period, such as a change in the rate of employer contributions, a business combination, or a divestiture as:

1. A business combination or a divestiture;
2. A change in the contractual employer contribution rate;
3. A change in the number of employees covered by the plan during each year.

The disclosures shall also include a description of the nature of the benefits and the types of employees covered by these benefits, such as medical benefits provided to active employees and retirees.

Employers with Two or More Plans

The disclosures may be aggregated for all of an employer's defined benefit pension plans and aggregated for all of an employer's defined benefit postretirement plans. The information may also be disaggregated, if that is thought to provide more useful information, or if required because of significant foreign plans. (However, where information is combined, an employer shall disclose the aggregate benefit obligation and aggregate fair value of plan assets for plans with benefit obligations in excess of plan assets.) The aggregate pension benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets is also required to be disclosed. Disclosure of amounts recognized in the statement of financial position is required to present prepaid benefit costs and accrued benefit liabilities separately.

Reduced Disclosure Requirements for Nonpublic Entities

Not-for-profit organizations, generally, will benefit from the provision of FASB ASC 715-20-50 for nonpublic entities to elect to provide reduced disclosures for pension and other postretirement benefit plans instead of the full disclosures described above. A nonpublic entity is:

one (a) other than one whose debt or equity securities trade in a public market either on a stock exchange (domestic or foreign) or in the over-the-counter market, including securities quoted only locally or regionally, (b) that makes a filing with a regulatory agency in preparation for the sale of any class of debt or equity securities in a public market, or (c) that is controlled by an entity covered by (a) or (b).

The reduced disclosure requirements are as follows:

1. The benefit obligation, fair value of plan assets, and funded status of the plan;
2. Employer contributions, participant contributions, and benefits paid;
3. Information about plan assets:
   1. For each major category of plan assets that shall include, but is not limited to, equity securities, debt securities, real estate, and all other assets, the percentage of the fair value of total plan assets held as of the measurement date used for each statement of financial position presented.
   2. A narrative description of investment policies and strategies, including target allocation percentages or range of percentages for each major category of plan assets presented on a weighted-average basis as of the measurement date(s) of the latest statement of financial position presented, if applicable, and other factors that are pertinent to an understanding of the policies or strategies such as investment goals, risk management practices, permitted and prohibited investments including the use of derivatives, diversification, and the relationship between plan assets and benefit obligations.
   3. A narrative description of the basis used to determine the overall expected long-term rate-of-return-on-assets assumption, such as the general approach used, the extent to which the overall rate-of-return-on-assets assumption was based on historical returns, the extent to which adjustments were made to those historical returns in order to reflect expectations of future returns, and how those adjustments were determined.
   4. Disclosure of additional asset categories and additional information about specific assets within a category is encouraged if that information is expected to be useful in understanding the risks associated with each asset category and the overall expected long-term rate of return on assets.
4. For defined benefit pension plans, the accumulated benefit obligation.
5. The benefits (as of the date of the latest statement of financial position presented) expected to be paid in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter. The expected benefits should be estimated based on the same assumptions used to measure the company's benefit obligation at the end of the year and should include benefits attributable to estimated future employee service.
6. The employer's best estimate, as soon as it can reasonably be determined, of contributions expected to be paid to the plan during the next fiscal year beginning after the date of the latest statement of financial position presented. Estimated contributions may be presented in the aggregate combining:
   1. Contributions required by funding regulations or laws;
   2. Discretionary contributions;
   3. Noncash contributions.
7. The amounts recognized in the statement of financial position, including the net pension and other postretirement benefit prepaid assets or accrued liabilities and any intangible asset and equivalent reported in the statement of activities.
8. The amount of net periodic benefit cost recognized and the amount recognized in the statement of activities arising from a change in the minimum pension liability recognized.
9. On a weighted-average basis, the following assumptions used in the accounting for the plans: assumed discount rate, rate of compensation increase (for pay-related plans), and expected long-term rate of return on plan assets specifying, in a tabular format, the assumptions used to determine the benefit obligation and the assumptions used to determine net benefit cost.
10. The measurement date(s) used to determine pension and other postretirement benefit measurements for the pension plans and other postretirement benefit plans that make up at least the majority of plan assets and benefit obligations.
11. The assumed health care cost trend rate(s) for the next year used to measure the expected cost of benefits covered by the plan (gross eligible charges), and a general description of the direction and pattern of change in the assumed trend rates thereafter, together with the ultimate trend rate(s) and when that rate is expected to be achieved.
12. Where applicable, the amounts and types of securities of the employer and related parties included in plan assets, the approximate amount of future annual benefits of plan participants covered by insurance contracts issued by the employer or related parties, and any significant transactions between the employer or related parties and the plan during the period.
13. The nature and effect of significant nonroutine events, such as amendments, combinations, divestitures, curtailments, and settlements.

Defined contribution plans. An employer is required to disclose the amount of cost recognized for defined contribution pension or other postretirement benefit plans during the period separately from the amount of cost recognized for defined benefit plans. The disclosure should include a description of the nature and effect of any significant changes during the period affecting comparability, such as a change in the rate of employer contributions.

Multiemployer plans. An employer is required to disclose the amount of contributions to multiemployer plans during the period. An employer should disclose total contributions to multiemployer plans without disaggregating the amount attributable to pension and other postretirement benefits. The disclosure should include a discussion of the nature and effect of any changes affecting comparability, such as a change in the rate of employer contributions. An employer should evaluate whether it has a contingent liability if it withdraws from a multiemployer plan for its portion of any unfunded benefit obligation.

The following illustrations are based on sample formats for disclosures provided by FASB ASC 715-20-55.