How will full adoption of statement 87 affect your liability disclosure?

• Author: Herdman, Robert K.

How will full adoption of Statement 87 affect your liability disclosure?

Has your company fully complied with the FASB's Statement 87, on accounting for pensions? The deadline allowed by the standard's transition provisions comes this year, and two accounting experts advise that you take one more look at your minimum liability disclosure. This year's reporting process will culminate at least two years of corporate adjustment to the income statement provisions of FASB Statement 87, Employers' Accounting for Pensions. While the transition to adopt this complex standard has been difficult for some companies, continued challenges lie ahead--since the transition provisions for recognizing a minimum liability and the application of all provisions to certain plans become effective in the first quarter of 1989.

Although most of the requirements of Statement 87 were effective for fiscal years beginning after December 15, 1986 (and many companies adopted early), the statement's transition provisions permitted a minimum two-year delay in the effective date for the following reasons: * Recognition by employers of additional pension liabilities on the balance sheet in situations where pension plans are not fully funded. * Application of the statement to non-U.S. plans (i.e., foreign plans) and nonpublic companies with defined benefit plans that have no more than 100 participants. Beginning in 1989, however, the transition window closes for calendar year-end companies. As a result, all companies will be required to apply all provisions of Statement 87, regardless of the number of participants in the plan or the plan's geographical location.

Notwithstanding Statement 87's requirements to obtain annual actuarial measurements at or near year-end, the FASB has stated that, consistent with the original transition provisions of the statement, the delayed transition provisions must be applied in the first interim period in the year they become effective. Thus, for public companies with calendar year-ends, the requirements to record a minimum pension liability for underfunded plans and to apply all the provisions of Statement 87 to foreign plans become effective in the first quarter of 1989. And meeting the minimum liability requirement could be trickier for many companies than they think.

What's your minimum liability?

Because of the passage of time since the initial adoption of Statement 87, its requirement to record a minimum liability has not received much...