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FASB to Require Reporting on Investments

All U.S. companies with traditional retirement plans will have to start disclosing the investment strategies they use in the plans under a pending rule, accounting rule-makers said Wednesday.

The move will be a significant change for the companies, which currently don't have to make public any details about the kinds of assets they hold in their retirement plans.

Under the new rule, which is expected later this year, companies will have to make public the proportion of stocks, bonds, real estate, private equity and other investments they hold in their pensions.

The Financial Accounting Standards Board voted Wednesday at a board meeting in Norwalk, Conn., to adopt the change, which is a part of larger initiative by the rule-maker to beef up companies' reporting on their pension plans. FASB has said it will issue the new disclosure requirements later this year.

The decision to require wide reporting of pension investment strategy came after weeks-long debate by FASB about whether to exempt some employers. Specifically, the rule-maker had earlier looked at dropping the requirement for companies that agreed to report target allocations for separate asset classes in their plans.

The FASB's meeting Wednesday was set to be the final one before it issues a final standard on pension reporting, which will change the rules by which companies have reported on their pension plans in financial statements for decades. However, Peter Proestakes, FASB's pension project manager, said during the meeting that he may ask the board to hold one more meeting before issuing the standard.

At the meeting, FASB also fine-tuned other previous decisions about the new disclosures. Specifically, board members decided on a formula by which all plan sponsors will have to start reporting their expected future benefit payments. Under the adopted method, a company will have to say how much it expects to pay during each of the next five years, and also report total expected payments for the five years following that initial period.

The decision on disclosing benefit payments — a key concern in analyzing company cash flow — came after board members debated whether to let companies choose how they reported on the matter.

“I think it will be helpful to the capital markets to have an understanding of the pattern,” board member Ed Trott said.

At the Wednesday meeting, FASB board members also voted on the timetable for companies to start making the new disclosures. Much of the reporting will begin this year, but companies will have until 2004 to make some disclosures. For example, they won't have to report estimated benefit payments until 2004, and will also have until then to begin reporting on total assets in retirement plans of their foreign divisions.

Despite fielding comment from actuaries, employers, academics and others over the past few weeks on its proposal, FASB appears to be on track to come out with the new standard soon.

“We're still expecting to get it out this year,” said Sheryl L. Thompson, an FASB spokeswoman.

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