FASB to Study Pension Accounting

The body that sets US accounting rules will start a review of rules governing the way companies measure benefit obligations in controversial retirement plans known as cash-balance pensions.

The Financial Accounting Standards Board Wednesday voted to add the cash-balance project to its formal agenda.

Cash-balance plans combine elements of traditional pension plans with 401(k) accounts, setting up individual employee accounts with annual benefits and interest credits.

Embraced by employers in the past, cash-balance pensions have attracted a huge amount of controversy recently, leaving their future uncertain. At issue are concerns that the pensions don't pay older workers their fair share of benefits.

Board members said at a meeting in Norwalk, Conn., that the project is necessary partly because of the numerous kinds of cash-balance plans that exist.

The move follows an aborted effort by FASB last spring to require companies with cash-balance plans to value the amount they owe in benefits using government bonds, rather than the high-grade corporate bonds other pensions use.

FASB put off that effort after employers and actuaries raised an outcry, saying the changes could hurt corporate earnings by expanding benefit obligations. They also complained that the public hadn't been given enough time to comment.

Patrick Durbin, the FASB staff member who formally recommended the cash-balance project to the board, said at the meeting that the FASB staff wants to have rule changes in place by the end of 2004.

Current FASB pension rules don't separately address the question of how companies should value cash-balance benefit obligations. Instead, the rules address the matter for the larger universe of traditional retirement plans known as defined benefit pensions, a category of plans that includes cash-balance plans.

FASB's cash-balance project is separate from a wider-ranging pension project currently under way by the rule-maker to increase the amount of information companies report about their traditional pension plans. The standards board earlier this month issued a set of draft rules for increasing disclosure, and has said it wants to put them into place by the end of the year.

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