Volume 26, No. 5

A New Recipe For Pension & Other Postretirement Benefits Reporting:  In mid-2015, FASB added a project intended to improve the convoluted presentation of net periodic pension cost and net periodic postretirement benefit cost. In less than three years - a virtual wind sprint for the standard setter -  they issued a final standard that just might make a difference. At the very least, the presentation makes much more sense than it ever did.

            Why does it make more sense? Because pension and other postretirement costs have been an amalgamation of dissimilar costs for decades, and they don’t go together well. This standard will make the most basic benefit cost element – service cost – separately visible from the other ones. For companies reporting a subtotal of operating income, service cost will be a part of operating income; all other benefit cost components will be excluded from operating income. If a firm doesn’t report an operating income figure, the service cost must still be isolated, and the location of all other elements of benefit cost must be disclosed.

            For some firms, this will be a boon to operating income - as long as their service cost is less than the net benefit cost. If the opposite is the case, then the reporting change will decrease the operating income. The effects won’t be seen until fiscal years beginning after December 15, 2017. Early implementation is allowed for only one time frame: the first quarter of 2017, so there could be a flurry of early adopters visible in just a few weeks. More than likely, early adopters will be the firms showing a benefit from the new standard. In this report, the effects on pertinent S&P 500 companies are examined as if the new standard had been in effect for the last three years.

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