Unexpectedly, most companies seem set to embrace a Financial Accounting Standard Board proposal to report the funded status of their defined-benefit pension plans on their balance sheets. Indeed, 87 percent of 122 senior finance executives say that companies should be required to account for pension plans that way, according to findings of a survey released by Grant Thornton today.
Last Friday, FASB proposed that employers should record the amounts that their retiree-benefit plans are underfunded or overfunded as a corporate asset or liability. Critics have claimed that big changes in pension-plan accounting could spawn a wave of restatements.
The proposal may be less objectionable to finance chiefs than previous FASB pension standards “because corporate pension information is already disclosed in the notes to the financial statements,” said John Hepp, a senior professional-standards manager at Grant Thornton. “The results of the survey may also reflect the long-term shift from corporate defined benefit plans to defined contribution retirement programs such as 401(k) and 403(b) plans. The latter will not be affected by the FASB proposal.”
More predictably, 84 percent of the CFOs and controllers polled by the accounting firm say that it should be tougher for bankrupt companies to turn over their pension obligations to the Pension Benefit Guaranty Corporation. Since the PBGC’s pension-insurance reserves are funded by corporate premium payments, executives of healthy firms bridle when companies in Chapter 11 try to dump their liabilities. In essence, they feel their companies shouldn’t pay higher premiums to subsidize the growing number of seriously underfunded plans.
The intent of the executives polled seemed to run counter to that of lawmakers. Negotiators of a joint House-Senate pension reform measure are considering extending the pension relief for airlines granted in the Senate bill to other shaky industries like autos and steel, Reuters reported earlier this week.
“Senior finance executives have spent the past few years making sure that their own financial houses are in order in response to Sarbanes-Oxley requirements,” noted Ed Nusbaum, chief executive officer of Grant Thornton. “Now they want to see Congress take additional steps that will compel companies to accept greater responsibility for meeting those obligations and strengthen the PBGC.”
The survey, which polled finance executives at companies ranging in size from more than $2 billion in annual revenues to less than $50 million, found that 55 percent believe that the quality of financial reporting has improved since the passage of Sarbox. Still, 76 percent felt that there is still a need for greater transparency in financial reporting.