The SEC announced today the release of a staff report prepared by the Office of the Chief Accountant, the Office of Economic Analysis and the Division of Corporation Finance on off-balance sheet arrangements, special purpose entities and related issues. The report recommends that “the accounting guidance for defined-benefit pension plans and other post-retirement benefit plans be reconsidered.” The report contains sample data suggesting that a staggering amount of liabilities for retirement plans overall (i.e. including pension and other postretirement benefit plans) remain off-balance sheet. Excerpt from the Report:
Some investors have expressed concerns about the transparency of pension and other postretirement benefit accounting and disclosure. The CFA Institute (formerly the Association for Investment Management and Research or “AIMR”), a nonprofit membership organization for investment professionals, recently commented that, because the pension and other postretirement benefit accounting standard “fails to provide full recognition in the financial statements of the effects on the firm of the pension and postretirement benefit contracts, a huge and very costly burden has been shifted to those for whom the statements are prepared, analysts and other users.” Accordingly, some investors have called for issuers to report actual gains and losses from changes in expected assumptions versus actual plan results by eliminating the smoothing of gains and losses currently allowed under GAAP and to separately recognize pension and other postretirement benefit plan assets and liabilities on the balance sheet. The Staff agrees that, under the current standards, the balance sheet is often not transparent as to the true funded status of pension plans and that additional clarity is necessary.
The Wall Street Journal reports: “SEC Seeks Enhanced Disclosure Of Pension and Lease Obligations.”
FASB’s reponse to the report is here.