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New Disclosures on Tap for Employers that Participate in Multiemployer Plans
by Barry T. Omahen, CPA, Managing Partner
November 16, 2011

After much deliberation, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan.  These new disclosures will be required for public entities beginning the first fiscal year ending after December 15, 2011, and for non-public entities beginning the first fiscal year ending after December 15, 2012. 

The update applies to non-governmental entities that participate in multiemployer:

  • Pension plans (defined benefit)
  • Plans other than pensions that provide postretirement benefits

It does not apply to multiple-employer or single-employer plans, nor does it apply to subsidiaries that participate in their parent’s single-employer plan or to local chapters of not-for-profit entities that participate in their national organization’s plan.

What has Changed?

Current Requirements
Employers are currently required to disclose the total amount of contributions made to multiemployer pension plans and/or other postretirement plans.

New Requirements
Employers that participate in a multiemployer pension plan will now be required to provide a narrative description of the general nature of the multiemployer pension plans and the employer’s participation in the plans that would indicate how the risks of these plans are different from single-employer plans. 

Employers are also required to disclose more detailed information about individually significant plans.  Much of the disclosure can be presented in tabular format and supplemented, as necessary, with narrative explaining significant items.

For each plan that is individually significant, employers are required to provide the following:
  • The Plan's legal name. 

  • The Plan’s employer identification number and, if available, its plan number.

  • The most recent certified zone status, as of the date of each balance sheet presented, which is required to be reported by plans subject to the Pension Protection Act of 2006 (or as subsequently amended).  The disclosure should specify the date of the plan’s year-end to which the zone status relates and whether the plan has used extended amortization provisions that affect the zone status calculation.  If a zone status is not available, the employer is required to disclose, on the basis of the financial statements provided by the plan, the total plan assets and accumulated benefit obligations as of the most recent date available, whether the plan was:

    • Less than 65 percent funded;

    • Between 65 percent and 80 percent funded; or

    • Greater than 80 percent funded.

  • Expiration date(s) of the collective bargaining agreements requiring contributions to the plan, if any.  If more than one collective bargaining agreement applies to the plan, the employer is required to provide a range of the expiration dates of those arrangements, supplemented with a qualitative description that identifies the significant collective bargaining agreements within the range and other information to help investors understand the significance of the collective bargaining agreements and when they expire (for example, the portion of employees covered by each agreement or the portion of contributions required by each agreement).

  • For each period that an income statement (statement of activities) is presented, contributions made to the plan and whether the contributions represent more than five percent of the total contributions to the plan, as indicated in the plan’s most recently available annual report, as well as the plan’s year-end date to which the annual report relates.

  • As of the end of the most recent annual period presented:

    • Whether a funding improvement plan or rehabilitation plan (for example, as those terms are defined by the Employee Retirement Income Security Act of 1974) had been implemented or was pending;

    • Whether the employer paid a surcharge to the plan; or

    • A description of any minimum contribution(s), required for future periods by the collective bargaining agreement(s), statutory obligations or other contractual obligations, if applicable.

In circumstances in which the plan-level information is not publicly available (e.g., no Form 5500), the employer is required to disclose additional information for each significant plan:

  • A description of the nature of plan benefits

  • A qualitative description of the extent to which the employer could be responsible for the obligations of the plan, including benefits earned by employees during employment with another employer; and

  • Other quantitative information that the employer believes would help financial statement users to understand the plan’s financial information, such as total plan assets, actuarial present value of accumulated plan benefits and total contributions received by the plan.

If this information is not available without undue cost and effort, it may be omitted; however, the employer must describe what information has been omitted and why.

In addition to the information for individually significant plans, employers will need to disclose, in the aggregate, total contributions to all other plans; a description of the nature and effect of any significant changes affecting comparability of total employer contributions from period to period, such as a business combination or divestiture; a change in the contractual employer contribution rate; or a change in the number of employees covered by the plan during the year.

What is a Significant Plan?

FASB left this area fairly subjective, suggesting that this determination is a matter of judgment requiring both quantitative and qualitative analysis.  Many factors, such as the following, may be considered:

  • Do the employer’s contributions account for more than 5% of the plan contributions?
  • Are these the only one or two plans in which the employer participates?
  • Are the majority of an employer’s employees in a particular plan?
  • Does the plan have a severe funding deficiency?
  • Is the plan facing termination?

Where will Employers Obtain the New Disclosure Information?

Generally, employers will gather this information from their own records and the Form 5500 filing for the multiemployer plans in which they participate.  Refer to Lindquist LLP’s Information Sources chart for guidance.

In some instances, the plan’s administrator may distribute some information, or it may be maintained on a plan’s website. 

And it is Not Just Pension Plans ...

An employer that participates in a multiemployer plan that provides postretirement benefits other than pensions needs to disclose its contributions to those plans.  These disclosures should include a description of the nature of the benefits and the types of employees covered by these benefits, such as medical benefits provided to active employees and retirees.  This disclosure should also describe the nature and effect of any changes affecting comparability between pensions presented, such as:

  • A business combination or a divestiture
  • A change in the contractual employer contribution rate
  • A change in the number of employees covered by the plan during the year

What Should be Your Game Plan?

Public Entities—Act Immediately

  • Identify all multiemployer defined benefit plans in whcih you participate
  • Obtain Forms 5500 for these plans for all periods in which you will present your financial statements
  • Identify “significant” plans
    • 5% contributor?
    • Funding improvement/rehabilitation plan?
    • Surcharges/minimum contributions?
  • Evaluate comparability for periods presented
  • Identify known changes going forward
  • Start the chart!

Non-Public Entities

  • You have some time, but it is best to get a plan in place.

Conclusion

While this new disclosure may not be extremely complex, it can become burdensome.  The more plans in which you participate, the greater the burden.  Start gathering your information now!

If your group is interested in a seminar to review this information in more detail, contact Marketing Manager Stephanie Kretschmer at skretschmer@lindquistcpa.com or (925) 277-9100. 

Barry T. Omahen, CPA, is Lindquist LLP's managing partner based in the San Ramon office.  Barry specializes in serving the audit, accounting and reporting needs of employee benefit funds, labor organizations and other not-for-profit entities.  He serves as the partner in-charge of the firm's quality control review and audit and accounting practice.  Please contact him at (925) 277-9100 or bomahen@lindquistcpa.com with questions.

 

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