How will the FASB rules change/impact your pension plans?
You rely on your retirement plans to help you get through your golden years. But what do you do when the rules that govern those plans suddenly change? A recent rules change at the Financial Accounting Standards Board (FASB) has many concerned about the potential impact of this change on pension plans. Here's a quick overview of the rules change and how it will impact you and your company.
The change in rules requires a pension company to only allow service costs to be recorded as an operating component of the plan on income statements to their clients. Prior to this point, there were a wide range of other costs that could be included in an income statement. Interest costs, expected returns on plan assets, settlement and curtailment costs, amortization of actuarial gains or losses and amortization of prior service costs represent a variety of facets of pension plan costs that were often included as operating costs. With the new rule in effect, these costs will need to be reported separately.
But what does this mean to pension plans in general? With the increased reporting detail requirement, there's more transparency in how costs are accrued and calculated. Because consumers will be more aware of what the pension company is doing with their funds, there will quite possibly be a shift to less risky fixed-income assets that have lower overall costs. In the past, these costs were either reported in the operating portion of an income statement or capitalized into the pension company's assets. Under the old rules, companies would invest in riskier assets like stocks, expecting a higher return on the investment to pay for a portion of the plan expenses. This process would often impact the net income and expense on each share.
Changes in regulations and rules can make it difficult to keep up with already complicated retirement plans. Having the right company to work with in these situations can make all the difference between keeping your pension plan in order and losing significant amounts of the plan to fees and fines. If you need help figuring out how the rules change will impact you and your company, please feel free to contact the professionals at AccountRely today.