April 3, 2006

FASB Proposes Comprehensive Overhaul of Pension Accounting

On Friday, the FASB issued a 115-page exposure draft proposing new standards for accounting for pension and other post-retirement plans; quite an achievement for the FASB to issue a proposal of this magnitude in such a relatively short period of time. Comments are due May 31st (and oddly, roundtables will be held after the comments are due). We have added this to our “Pension Plans” Practice Area.

This exposure draft reflects Phase 1 of a comprehensive overhaul of accounting for pensions and other post-retirement plans. There are many proposed changes as this is a complex statement. For example, the proposal would require companies to move certain pension values that are now reported in footnotes of their financial statements to their balance sheets — where all their assets and liabilities are reflected. And the proposal would require companies to measure their pension funds’ values on the same date they measure all their other obligations.

Believe it or not, the FASB’s goal is to issue a final statement by this September! And it would be effective for fiscal years ending after December 15, 2006 – so it would apply to this year for calendar-year companies! Retrospective application would be required, unless it is deemed impracticable for reasons explained in the exposure draft. As discussed in paragraphs 14-23, there are separate effective date and transition provisions for the new measurement date requirement to measure plan assets and benefit obligations as of the date of the employer’s statement of financial position. Whole lot of changing going on!

The proposed statement would apply to public entities and non-public entities, including not-for-profits. The impact for each company will vary and could be quite significant for some. These balance sheet changes could also impact contractual and other measurements for other purposes, such as shareholder’s equity, return on equity, etc.

In the future, the FASB will consider a Phase 2 regarding a variety of other issues related to accounting for post-retirement benefits. And don’t forget, Congress continues to debate all sorts of issues related to pension plans, including funding requirements.

More on CEO Pay

Last week, this 35-page report from The Corporate Library and AFSCME challenged large mutual funds to overcome their “systematic unwillingness” to use their voting power to check executive compensation.

In addition, The Corporate Library released this study entitled “Pay for Failure: The Compensation Committees Responsible” which highlights 11 of the largest companies in the U.S. that combined high levels of CEO compensation and poor performance over the past five years.

April E-minders is Up!

The April edition of our monthly newsletter is now available – sign up today to receive it on a complimentary basis.

Comments Submitted on the SEC’s Best Price Proposal

With the deadline now a month behind us, only ten comment letters have been submitted on the SEC’s best price rule proposal.

Kevin Miller of Alston & Bird notes that an overarching concern reflected in many of the comments is that the approval by an appropriate committee (as defined somewhat differently in each of the letters) should be sufficient in and of itself for purposes of satisfying the safe harbor and that challenges to any required determinations by such committees (or the independence of committee members) should not affect the availability of the safe harbor. Several comment letters note that permitting such challenges to affect the availability of the safe harbor would significantly undermine its utility by failing to eliminate unwarranted incentives to utilize statutory mergers in lieu of a two step acquisition structure involving a tender offer.

On my Blog, I have listed some highlights from a subset of these letters. Check it out!