The Financial Accounting Standards Board (FASB) recently issued an Exposure Draft, Disclosure About An Employer’s Participation In A Multi-Employer Plan, which potentially could have significant affects on the construction industry. Many contractors contribute to multi-employer plans. The Exposure Draft proposes significant new disclosure requirements for companies participating in these multi-employer plans.
The funded status of many of these plans deteriorated during the financial crisis of 2008 when plan asset values dropped significantly. The aggregate amount of unfunded obligations associated with multi-employer plans potentially could result in significant liabilities and cash contribution requirements for contractors which participate in these plans. The Board has indicated that users of financial statements have commented on the perceived lack of transparency about an employer’s participation in multi-employer plans. The objective of the proposed new disclosures according to the Board is to increase awareness of the commitments and risks involved with participating in these plans.
The Exposure Draft requires that an employer disclose information separately for pensions and other postretirement benefits. In addition, it requires that companies disaggregate disclosures for plans or groups of plans with different risk characteristics or contractual commitments, as well as disclose the basis for the disaggregations. For example, separate disclosures are required for plans in which the fair value of assets exceeds the liabilities as compared to plans in which the fair value of assets is less than the liabilities.
The current disclosures about an employer’s participation in a multi-employer plan are limited to the amount of contributions made to the plan each year. Under the Exposure Draft, employers are required to disclose both quantitative and qualitative information on their participation in multi-employer plans.
The proposed disclosure requirements under the Exposure Draft are as follows:
- The number of plans in which the employer participates.
- For individually material plans, the name of the plan(s).
- Narrative descriptions of all of the following:
- The employer’s exposure to significant risks and uncertainties arising from its participation in the plan(s). That narrative description shall include the extent to which, under the terms and conditions of the plan(s), the employer can be liable to the plan(s) for other participating employer’s obligations.
- How benefit levels for plan participants are determined.
- Whether the employer is or is not represented on the board of trustees of the plan(s) or a similar body.
- The consequences the employer may face if it ceases contributing to the plan(s).
- Any funding improvement plan(s) or rehabilitation plan(s), including the expected effects on the employer. For plans in regulatory warning zones, the warning status and remedies being considered by the plan(s) should be described, if known.
- A description of the nature and effect of any changes affecting comparability from period to period, including both of the following:
- A business combination or a divestiture.
- The rate of employer contributions for each period for which a statement of income is presented.
- Total assets and the accumulated benefit obligation of the plan(s), if obtainable, as of the most recent financial statement plan year-end and, for comparability, those amounts for the corresponding prior periods.
- Employer’s contributions as a percentage of total contribution to the plan(s), if obtainable, for the year ended as of the employer’s latest statement of financial position date or most recent date available before the statement of financial position date and, for comparability, that percentage for the corresponding prior periods.
- A description of the contractual arrangement(s), including all of the following:
- The term of the current arrangement(s).
- For each future year covered by a contract, the agreed-upon basis for determining contribution(s).
- Any minimum contribution(s) required by the agreement(s).
- Percentage of the employer’s employees covered by such plan(s).
- Quantitative information about the employer’s participation in the plan(s), for example, the number of its employee participants as a percentage of total plan participants disaggregated between active and retired participants, if obtainable, as of the most recent date available.
- Amount of contributions for the current reporting period.
- Expected contributions for the next annual period.
- Known trends in contributions, including the extent to which a surplus or deficit in the plan may affect future contributions.
- For plans for which an amount is required to be paid on withdrawal from the plan or windup of the plan:
- Details of any agreed deficit or surplus allocation to participating employers on windup.
- The amount that is required to be paid on withdrawal from the plan as of the most recent date available, if that information is obtainable.
- If the amount required to be paid on withdrawal is not obtainable, information about the employer’s relative participation in those plans (such as percentage of total contributions to such plan(s) or percentage of participants covered by such plan(s)).
FASB’s proposed requirements are effective for fiscal years ending after December 15, 2010. However, the proposed requirements for nonpublic entities are effective for fiscal years ending after December 15, 2011. FASB is accepting comments on the Exposure Draft until November 1, 2010.
Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.
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