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FASB Allows Flexibility On Retiree Drug Accounting

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NU Online News Service, Jan. 13, 2004, 12:15 p.m. EST – The Financial Accounting Standards Board, Norwalk, Conn., says employers can choose whether to include the effects of the new Medicare Prescription Drug, Improvement and Modernization Act of 2003 on the cost of retiree prescription drug benefits in their financial statements.[@@]

FASB announced the decision Tuesday in a FASB Staff Position on Statement 106, or FSP FAS 106-1.

The MPDIMA, based on H.R. 1, is supposed to create a new federal subsidy for employer-sponsored retiree drug benefit programs.

Originally, the FASB staff had recommended that employers wait until the federal government works out the details before putting the effects of the subsidy in their financial statements.

Now, FASB says employers either can wait until the final regulations appear and disclose the fact that they are waiting, or they can take MPDIMA into consideration and describe the actuarial basis for their calculations, according to Kathryn Bakich, national director of health care compliance in the Washington office of The Segal Company.

“There are still a lot of questions,” Bakich says.

The government has not given employers and their advisors guidance on how to do the calculations needed to incorporate the effects of MPDIMA into financial statements, Bakich says.

But an employer that gets good legal and accounting advice and uses a reasonable, conservative approach to computing the effects of MPDIMA probably will be OK, Bakich says.

FASB has posted the staff position document at //