A new accounting guideline could help employees and retirees make sure their pension benefits don’t disappear overnight.
The Financial Accounting Standards Board, which establishes standards of financial accounting and reporting, has issued a statement that improves financial statement disclosures for defined-benefit plans.
The effort began last year in response to concerns raised by investors and other users of financial statements about the need for greater transparency of pension information. The change replaces existing board disclosure requirements for pensions.
"These disclosures will provide investors with greater visibility into plan assets and a clearer picture of cash requirements for benefit payments and contributions to fund pension and other post-retirement benefit plans," said Peter Proestakes, the board’s project manager. The guideline is effective for fiscal years ending after Dec. 15, 2003, and for quarters starting after that date.
The new standard requires companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant information.
Companies are now required to provide on their financial statements a breakdown of plan assets by category, such as equity, debt and real estate. A description of investment policies and strategies, and target percentages, or target ranges, for these asset categories also are required in financial statements.
Cash flows must include projections of future benefit payments and an estimate of contributions to be made in the next year to fund pension and other postretirement benefit plans.
The increased disclosure is a plus for employees and retirees in that "you should really know how your company is doing if you have a defined-benefit program because everything is really dependent on that," said Rebecca Warren, a certified financial planner professional at Warren Financial Services in Mesa.
The additional information can be complicated, so have your financial statement reviewed by a financial planner or accountant, Warren said. Also, the Employee Benefits Security Administration’s Web site, at www.dol.gov/ebsa, offers a booklet titled "Protect Your Pension" that helps explain the information, she said.
The Pension Benefit Guaranty Corp., a federal agency that insures private pension plans, protects workers’ pensions in case an employer defaults, but there is a cap on how much it will pay out.
"That’s kind of scary for higher-paid retirees if they were supposed to get higher than that amount per year," she said. "If the plan is in trouble and you think that that’s a problem, you might want to take a lump sum instead of taking monthly payments when you retire. And if you’re still working at the company, you might want to put your contributions into individual retirement accounts and other (retirement savings vehicles) in addition to what’s going to happen with the pension plan."