June 19, 2012
As many of you may already know, new financial statement disclosure requirements for multi-employer plans ("plans") have been considered over the past few years. For contractors, this means all UNION PLANS. This disclosure becomes effective for years ending December 31, 2012. The purpose of the new disclosures is to better inform the reader of the financial statements as to the funded status of the plans in which a company participates while also identifying what actions, if any, a plan has taken to rectify an underfunded status. The good news is that the new disclosures do not require a company to disclose the liabilities that would be incurred if the company were to withdraw from the plans (which had been considered in earlier drafts of the disclosure requirements). However, the new disclosure in the Company's financial statements does require much more information than the previous multi-employer plan disclosure. The most significant requirements of the new financial statement disclosures are as follows:
- Legal name and Employer Identification Number of each plan in which the Company materially participates.
- The most recent certified funded status (also known as the "zone status") as required by the Pension and Protection Act of 2006. The status distinguishes between plans that are less than 65% funded (RED), between 65% and 80% funded (YELLOW), and over 80% funded (GREEN).
- Identification of those plans in which the Company's contributions to each of the plans they participate in represented greater than 5% of the plan's total contributions for the year.
- Identification of those plans in which a funding improvement plan is being considered or has been implemented.
- The Company's total plan contributions during the year, separately disclosing contributions to those plans determined to be individually significant.
- Expiration dates of the respective collective bargaining agreements.
- Identification of any plan amendments or surcharges adopted by the individually significant plans.
With the exception of the Company's plan contributions, the information required for the new financial statement disclosures should be obtained through the respective unions. While accumulating the required information, please keep in mind the following:
- For those companies presenting comparative financial statements (presenting both current and prior year financial information), the financial statements will need to include the new disclosure for both the current year and prior year.
- The new disclosures are required for only those plans that are considered individually significant.
For additional information, please access the below link to the Financial Accounting Standards Board's (FASB's) website.
This article was written by Tom Sutphen, CPA, Audit Manager with Wiss & Company. Tom can be contacted at firstname.lastname@example.org.