Pension assets and obligations are significant for many entities. In fact, pension costs are on the rise. At the same time, employers' accounting for pensions and the calculations underlying the pension obligation are complex.
Companies are currently focused on the recently issued guidance. In March 2017, the FASB issued ASU No. 2017-07 on the presentation of net periodic pension and postretirement benefit cost (net benefit cost). Prior to adoption, all components of net benefit cost (including current period employee service cost, interest cost on the obligation, expected return on plan assets, and amortization of various amounts deferred from previous periods) must be aggregated and reported as a single net employee compensation cost, which is either reported within the operating section of the income statement or capitalized into assets, when appropriate. Under the new rules, entities that sponsor defined benefit plans will present net benefit cost as follows:
The new guidance is effective in 2018 for calendar-year public business entities and in 2019 for calendar-year other entities. Early adoption would be permitted, although only in the first interim period of a fiscal year, if interim financial statements are issued. For further details, refer to In depth US2017-05, FASB changes the presentation of pension cost and Insights from People & Organization, Pension rule changes may improve operating margins.
Assessing risk in your pension plan? Listen in to hear the types of risks pensions face, the actions companies are taking and the related accounting impacts.