Compliance June 8, 2011

FASB Changes Position on Multi-Employer Plan Disclosure

The Financial Accounting Standards Board (FASB) has tentatively decided not to require employers that contribute to multi-employer plans to disclose the estimated withdrawal liability, as it had proposed in a draft.
Reported by

Instead, FASB tentatively decided to require disclosures about multi-employer plans’ zone status and other identifying information.   

According to a Compliance Alert from Segal, FASB may require the following disclosures about participation in multi-employer plans that are material, to give investors or lenders information they could use to find out more about the plans if they believe it would useful: 

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

  • Basic Information about the Plan.  This includes the plan’s legal name and its Employer Identification Number, as well as the expiration date of the collective-bargaining arrangement under which the employer contributes.  
  • Information about the Employer’s Contributions.  The employer would have to disclose contributions made to each individually material plan (as well as aggregate contributions to all non-material plans) and whether it paid a surcharge to the plan, if the plan was in critical status (the red zone). The employer would also have to note whether its contributions represent more than 5 percent of total contributions to any plan.  
  • Information about Zone Status.  The employer would have to provide the plan’s most recent certified zone status, as required by the Pension Protection Act of 2006, if available, and disclose whether a funding improvement plan or rehabilitation plan had been implemented or was pending. (If the plan’s zone status is not available, an employer would have to disclose the plan’s funded ratio: less than 65%, between 65% and 80%, or greater than 80%.) 

Segal reported FASB is no longer proposing that employers be required to provide the following detailed information about multi-employer plans, which had been proposed in the Exposure Draft along with the withdrawal liability disclosure: 

  • The number of multiemployer plans in which the employer participates 
  • The total assets and the accumulated benefit obligation of those multiemployer plans
  • The employer’s contributions to each material plan as a percentage of total contributions 
  • The percentage of the employer’s employees that are covered by multiemployer plans
  • Supplemental information about the plans in which the information about the withdrawal liability is not available

FASB may abandon these proposed disclosures based on the more than 320 comments it received on the Exposure Draft.   

The alert said FASB will now conduct outreach with financial statement users (mainly investment and credit analysts) about these tentative decisions.
The Markets June 8, 2011

DC Plan Assets Boosted by Contributions

The Callan DC Index started the year strongly, advancing 4.3% in the first quarter, bolstering the annual return since inception, which now stands at 3.8%. 

 

Reported by

As in the previous quarter, the DC Index bested the return of the average corporate defined benefit (DB) plan, this time by a margin of over 70 basis points. Despite the recent outperformance, since inception the DC Index trails the average corporate DB plan by nearly 1.5 percentage points.  

DC Index asset growth hit a new high water mark in the first quarter. Since inception, DC Index assets have grown 7.1% annually. However, nearly half of the annual asset growth comes not from returns, but from plan sponsor and participant contributions. Callan said this speaks to the importance of robust contributions in achieving desired DC balance levels.  

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Target-date funds (TDFs) once again garnered healthy inflows, continuing a pattern since the Index’s inception. This asset class accounted for more than 40% of total inflows in the first quarter. Company stock, domestic large cap equity, and emerging markets equity funds all suffered outflows during the quarter. In a move that perhaps echoed participant sentiment regarding inflation, asset classes with perceived inflation sensitivity, such as real estate and real return/TIPS, experienced inflows. As in the previous quarter, solid inflows in small cap equity followed robust performance. Total Index turnover was below average for the quarter at 0.69%. 

During 2011, the share of equities in the overall DC Index rose to 65.5%. This is still well below the Index’s all time high of 70.5%, reached at the end of 2006. However, it is a marked increase from the low of 55% in equities seen in March 2009. Callan said the Index shows that participants tend to allow their equity allocations to drift upwards and downwards with market movements—creating a situation where they are heaviest in equities at market peaks and lightest in equities at market low points.  

The Callan DC Index is an equally weighted index tracking the cash flows and performance of more than 70 defined contribution plans, representing greater than 800,000 defined contribution participants and more than $80 billion in assets.

«