Articles and Newsletters

Client Alert from the Employee Benefits Group - January 2012

Enhanced Financial Reporting Requirements for

Employers Contributing to

Multiemployer Pension Plans

By Jeremy J. Sharp

Under guidance released by the Federal Accounting Standards Board ("FASB") in Accounting Standards Update No. 2011-09, many companies will have to comply with new financial statement disclosure requirements with respect to obligations to multiemployer pension funds. Prior to the issuance of Update No. 2011-09, required disclosures under GAAP were generally limited to historical contribution information for the employer to the multiemployer pension plan.

Employers Subject to New Requirements. The new disclosure requirements are mandatory for companies with publicly traded securities and other companies obligated to follow generally accepted accounting principles ("GAAP").

Effective Dates for New Requirements. The new rules apply to public companies for fiscal years ending after December 15, 2011. For non-public companies subject to GAAP, the new rules apply for fiscal years ending after December 15, 2012.

New Disclosure Requirements. The new FASB disclosure requirements include the following information with respect to a multiemployer pension plan ("Plan"):

• The legal name of the Plan
• The Plan's employer identification number (EIN)
• The Plan's three-digit plan number
• The Plan's most recently available funding certification zone; under the Pension Protection Act of 2006 ("PPA"), there are three funding zones - red, yellow, and green - signifying different obligations under PPA
  • The red zone means that the Plan's funding status is "critical" (generally, less than 65% funded)
  • The yellow zone means that the Plan's funding status is "endangered" (generally, less than 80% funded)
  • The green zone means that the Plan is at least 80% funded.
• The respective expiration date of any collective bargaining agreement requiring contributions to the Plan
• For the time period that the financial statement covers:
  • The employer's contributions to the Plan, and
  • Whether the employer's contributions equal five percent (5%) or more of total contributions to the Plan (as reported on the most recently available IRS Form 5500 for the Plan)
• As of the conclusion of the most recent annual time period being presented by the financial statement:
  • Whether the Plan has implemented a "funding improvement plan" or "rehabilitation plan" under the PPA,
  • Whether the employer paid a surcharge to the Plan, and
  • A description of any future minimum contributions required (by collective bargaining agreement, statute or contract)

Action Items. Employers subject to the new requirements under Accounting Standards Update No. 2011-09 should prepare now for compliance with and the potential effect of the new disclosure requirements.