Employers that participate in multiemployer pension plans may be required, under a proposed new FASB Accounting Standard Codification, to disclose much more information to their auditors about the plans and their participation in them than has ever been required before.

The Financial Accounting Standards Board, or FASB, is an independent, non-governmental agency that sets the accounting standards for nongovernmental entities. Although the FASB rules are aimed directly at publicly traded companies, they will affect all employers that obtain audited financial statements prepared in accordance with generally accepted accounting principles.

The proposed standard deals only with participation in multiemployer (collectively bargained) pension plans and not multiple employer (non-collectively bargained) pension plans or single-employer pension plans (including pension plans maintained by related employers within a “controlled group”).

The FASB proposal may be both substantively and procedurally troubling for the affected employers

The essence of the proposed new standard is that employers that participate in multiemployer pension plans may be required to add a footnote to their financial statements for each multiemployer plan in which they participate, detailing information about the plan, the employer’s involvement with the plan, the plan’s funding level and any withdrawal liability that would be attributable to the employer. This information will be difficult and potentially expensive for employers to gather.

The proposal may be substantively troubling, because it may lead to footnote disclosures on the affected employers’ financial statements that give existing or potential shareholders or creditors concerns about the employer’s potential liability to a multiemployer plan. For example, the employer might have no intention of withdrawing from a multiemployer pension plan and incurring withdrawal liability, but the footnote on its financial statement might give a large and worrisome potential withdrawal-liability figure nonetheless. This may affect the employer’s ability to borrow or capitalize.

The proposal may be procedurally troubling because it may require the employer to get data from the plan, which could be difficult, expensive and time-consuming to do. Even now, many plans impose significant charges for withdrawal-liability estimates, for example, even though those estimates may be quite untimely. Many multiemployer plans don’t calculate and announce their funding levels for many months after the plan year end. Those calculations are essentially a snapshot of the previous plan year end, and may no longer reflect the plan’s funding picture by the time the estimates are available.

This proposal seems likely to make the cost and timeliness problems worse, by increasing the number and complexity of employers’ requests for information. If the plan fails to cooperate in a timely manner, the employer may have no leverage to get timely cooperation from the plan, and the employer may get a qualified opinion from its auditors, or worse, despite the employer’s best efforts. This, in turn, may adversely affect the employer’s ability to borrow or capitalize.

Time Is Short

FASB has requested comments on the proposal, but the comment period is short. Written comments must be received by November 1, 2010 in order to be considered. They may be e-mailed to director@fasb.org or sent by US Mail to Technical Director, FASB, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. Whether e-mailed or snail-mailed, comments should note FASB’s file reference no. 1860-100. Comments submitted become part of FASB’s official file, which is available to the public.

The proposal is currently scheduled to take effect for fiscal periods ending after December 15, 2010 for publicly traded entities, with a one-year delay for entities that are not publicly traded.

If you have questions about the FASB proposal, or about multiemployer pension plans generally, please contact any member of the firm’s Labor or Employee Benefits sections.

- Thomas I. Kramer & Sarah M. Petersen