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

• Date: 01 September 2017
• DOI: http://doi.org/10.1002/jcaf.22289
• Published date: 01 September 2017

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