FASB Changes Presentation of Periodic Pension Cost and Modifications to Stock Compensation Awards

Date01 September 2017
DOIhttp://doi.org/10.1002/jcaf.22289
Published date01 September 2017
AuthorPaul Munter
51
© 2017 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22289
FASB
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FASB Changes Presentation of Periodic
Pension Cost and Modifications to Stock
Compensation Awards
Paul Munter
Much of the Financial
Accounting Standards Board’s
(FASB) recent standard-setting
focus has been its simplification
initiative.1 Consistent with its
objective in the simplification
initiative, the FASB made two
recent changes to accounting
and reporting for compensation
arrangements that are intended
to more clearly depict the com-
ponents of compensation costs
associated with defined benefit
postretirement arrangements
and clarify and simplify the
accounting for certain modi-
fications to employee share-
based payment arrangements.
EMPLOYER’S ACCOUNTING
FOR DEFINED BENEFIT PLAN
ARRANGEMENTS
Employers that sponsor
defined benefit postretirement
arrangements for employ-
ees must account for various
aspects of the arrangement
including the service cost,
interest on the obligation,
return on the plan assets, prior
service cost resulting from plan
amendments, and for remea-
surements that arise related to
the obligation (actuarial gains
or losses) and the return on
the plan assets. The account-
ing for defined benefit pension
arrangements and other defined
benefit postretirement arrange-
ments, such as postretirement
health care arrangements, is
similar and involves determin-
ing the following amounts for
each reporting period2:
Service cost—the actuarial
present value of benefits
attributed by the postre-
tirement benefit formula
to services rendered by
employees during that
period.
Interest cost—the increase
in the postretirement ben-
efit obligation during the
period due to the passage
of time.
Expected return on plan
assets—the amount recog-
nized in the current period
on plan assets, which can
be based on the long-term
expected rate of return
applied to the market-
related value of the plan
assets.
Amortization of prior service
cost—prior service cost is
the increase or decrease in
the postretirement benefit
obligation resulting from
a plan amendment. This is
amortized over the average
remaining service period
or the average remaining
life expectancy of the plan
participants.
Amortization of amounts
in accumulated other
comprehensive income
amounts in accumulated
other comprehensive
income must be amortized
into current earnings to
the extent that the amount
exceeds a “corridor”
amount.
Determining each of these
amounts can be challenging
and usually will involve the
participation of a qualified

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