Many employers contribute to multiemployer union pension plans. However, if you’re like most companies, you know little, if anything, about the financial health of those plans. Unfortunately, the recent economic slowdown has put a financial strain on many participating employers’ ability to contribute to these plans. While your company may have held up its end of the bargain…have others? What if those plans are significantly underfunded? Will the unfunded obligation of the plan be borne by the remaining participating employers, such as your company? What steps have the plan trustees taken to improve the financial health of the plan, which may impact the amount of required future contributions?
To help address these concerns, the Financial Accounting Standards Board recently issued an amendment requiring employers to disclose additional information about their financial obligations to multiemployer plans. These expanded disclosures will provide financial statement users with more detailed information to assess their potential exposure when participating in these plans, for which minimal disclosures currently exist.
These disclosures, entitled Accounting Standards Update 2011-09 Disclosures about an Employer’s Participation in a Multiemployer Plan, are effective for non-public companies for fiscal years ending after December 15, 2012. Following is the key information that the new disclosures must include:
- Plan legal name, plan employer identification number and, if available, the plan number for all significant plans in which the employer participates
- Each plan’s most recent certified zone status (a color coded designation based on the funded status of the plan) as defined by the Pension Protection Act of 2006.
If the zone status is not available, an employer will be required to disclose the total plan assets and accumulated benefit obligations, and whether the plan was less than 65% funded (red zone), between 65% - 80% funded (yellow zone), or at least 80% funded (green zone).
- The expiration date(s) of any collective-bargaining agreement(s) that require contributions to the plan and any minimum funding requirements
- The amount of the employer’s contribution to the plan
- Whether the employer’s contributions are greater than 5% of total plan contributions
- Indication of what plans, if any, are subject to funding improvement plans
- Whether the employer paid a surcharge to the plan
- A description of any minimum contributions required for future periods by collective-bargaining agreement(s), statutory obligations or other contractual obligations
- A description of the nature and effect of any significant changes affecting comparability for each period in which a statement of income is provided
When feasible, the above information should be provided in a tabular format. Information that requires greater narrative description may be provided outside of the table.
We recommend you start asking questions and gathering the above information now to ensure you’re ready to implement the new disclosure requirements come December. Contact us for assistance.
Scott Gokey, CPA, manager, has more than ten years of experience providing audit, accounting and consulting services to a wide variety of businesses. Scott’s particular areas of experience include audits of commercial and service organizations, benefit plan audits, agreed upon procedure examinations and providing consulting services to clients.