The improved funded status of U.S. pension plans lessened the shareholder equity impact of the switch to new accounting rules, according to a Mercer report.
FAS 158, the new accounting standard, requires plan sponsors to recognize the net difference between plan assets and benefit obligations for both pension and other postretirement benefit plans in the balance sheet.
“The resulting improvement in funded status had a number of related positive effects, including improved sponsor cash flow and smaller-than-expected reductions in shareholder equity due to FAS 158,” says Steve Alpert, a principal and consulting actuary with Mercer.
Largely due to 2006 asset returns that exceeded liability growth, the median after-tax reduction in shareholder equity was only 1.7% for 304 companies that reported adopting FAS 158 in 2006. Reductions in equity for the middle 50% of companies ranged from 0.4% to 5.2%.
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Among companies in the S&P 500, the funded status of pension plans increased to 89% last year from 83% in 2005.
Recently, the Accounting Standards Board(AcSB)decided not to proceed with its proposed pension and benefit accounting changes after considering the comments from a wide spectrum of stakeholders.
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