October 2000

FASB responds to SFAS 135 measurement and recognition requirement issue

Since the publication of the article “The Effect of SFAS 135 Technical Corrections on Measurement of Net Periodic Pension Expense,” by Kathryn M. Means and Julia L. Higgs (CPA Journal, May 2000), the staff at FASB has received inquiries as to whether Statement 135 was intended to change the accounting measurement and recognition requirements in Statements 87 and 106. The article questions whether certain technical corrections made in FASB Statement No. 135, Rescission of FASB Statement No. 75 and Technical Corrections, change the accounting measurement and recognition requirements for pensions and other postretirement benefits under FASB Statements No. 87, Employers’ Accounting for Pensions, and No. 106, Employers’ Accounting for Postretirement Benefts Other Than Pensions.

At the July 19–20, 2000, EITF meeting, the FASB staff made an official announcement to answer this question. It will be found as Topic No. D-92 in Appendix D of the EITF Abstracts. These technical corrections revise Statements 87 and 106 for the amended disclosure requirements in FASB Statement No. 132, Employers’ Disclosures About Pension and Other Postretirement Benefits. In Statement 132, the board retained the requirements in Statements 87 and 106 to separately disclose certain components of net periodic benefit cost. In addition, FASB concluded that an entity should disclose separately (as a component of benefit cost) the expected return on plan assets. Thus, Statement 132 amended the disclosure requirements of Statements 87 and 106 that required separate disclosure of 1) the actual return on plan assets and 2) the difference between actual return and expected return on plan assets on a combined basis, as the net total of certain other components.

Although Statement 132 amended the disclosure requirements of both Statements 87 and 106, it did not provide a complete analysis of the amendments to existing pronouncements. Accordingly, in Statement 135, FASB revised both Statements 87 and 106 to reflect the amendments made by Statement 132. The technical corrections in Statement 135 included technical corrections in paragraphs 4(p)(1), 4(p)(7), and 4(r)(2)(a) in order to delete from the definition of the gain or loss component (of net periodic benefit cost) the difference between the actual return on plan assets and the expected return on plan assets. Because these technical corrections inadvertently changed the definition of the gain or loss component for purposes of measurement guidance in paragraph 20 of Statement 87 and paragraph 46 of Statement 106, the technical correction could be seen as eliminating the delayed recognition of changes in the value of plan assets.

The staff announcement points out that the intent of the technical correction was not to fundamentally change the accounting for net benefit costs. Statement 132 states in paragraph 4, “This statement addresses disclosure only. It does not address measurement or recognition.” Paragraphs 4(p)(1), 4(p)(7), and 4(r)(2)(a) of Statement 135 will be shaded in the FASB Original Pronouncements as of June 1, 2000, and a note will be added as follows:

Editors Note: The amendment that is highlighted by shaded text should not be applied for purposes of measurement and recognition of net periodic benefit cost. This amendment will be deleted or amended in a future Statement of Financial Accounting Standards that will make technical corrections to authoritative literature.

Although FASB has tried to widely circulate this staff announcement, some may be unaware of FASB’s response.

Timothy S. Lucas
Director, Research and Technical Activities, Financial Accounting Standards Board

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