Balancing Cash-Balance Plans

FASB reportedly mulling whether to require employers to use an interest rate tied to a market index to value plan liabilities.

Much to the chagrin of some big employers, the Financial Accounting Standards Board has agreed to look again at a proposal made by its Emerging Issues Task Force (EITF). The proposal would change the way cash-balance pension plans are valued, according to Reuters.

Cash-balance plans, which are backed mostly by corporations and decried by many employee groups, feature provisions of both defined-benefit and defined-contribution pension plans.

If FASB approves the proposal, the EITF plan would increase the liabilities of such plans on corporate financial statements.

Under the proposal, which was made May 15, companies would reportedly be required to use an interest rate tied to a market index like the one-year Treasury bill to value the liabilities of cash-balance pension plans.

Companies currently use higher interest rates to gauge the cash they’ll have to dish out to retirees. The interest rates currently in use are based on high-quality, long-term corporate bonds.

Not unexpectedly, at least one employer group is looking to deep-six the EITF proposal. The ERISA Industry Committee, which lobbies on benefit issues, complained that the proposal was made without any notice, comment period, or discussion. The group estimates that changing the interest rate to a more conservative one would increase some plan liabilities by 20 percent to 40 percent, Reuters reported.

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