Under increasing pressure, the Financial Accounting Standards Board (FASB) agreed to take another look at its proposed rule that would change the way some pensions are valued which could have had a possible negative impact on some companies’ balance sheets.
Industry groups decried the proposed rule change, which would have required companies to use an interest rate tied to a market index—a one-year Treasury bill, for instance—to place a value on their pension liabilities. Because most companies now use an interest rate tied to higher-quality, long-term corporate bonds, companies with cash-balance pensions would have been forced to put more money toward the pension funds owed to retirees to offset the effect of the lower interest rate.
The rule, which FASB had been scheduled to approve at its meeting yesterday, was sent back for further review by board staff after industry leaders claimed there had been insufficient time to comment. FASB sets accounting rules for corporate America.
In protesting the rule, industry groups predicted that the change to a more conservative interest rate would increase plan liabilities by as much as 20 to 40 percent, with a negative impact showing on balance sheets as soon as the fourth quarter of this year.
FASB came under attack for considering a vote on the rule change that only came to light within the last month.
The Wall Street Journal reported that FASB was inundated with "a lot of letters and e-mail from people who have these cash-balance plans" who complained about the proposal, said Robert H. Herz, FASB’s chairman. "In view of that, we decided to look at this further to give it more due process, and we have directed staff to go back to see how to do that."
Pension sponsors and actuarial firms wrote to FASB last week saying that the board hadn’t given the public enough time to study and comment on the proposal.
"The FASB should not make a decision of this magnitude without giving all interested parties, including the employers that sponsor cash balance plans, an opportunity to submit comments on the issue," the ERISA Industry Committee said in a letter.