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FASB Eyes Retirement Plans And Life Policy Valuation

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The Financial Accounting Standards Board says it wants to start a project to review reporting rules for defined benefit pension plans, 401(k) plans and other retirement plans.[@@]

FASB, Norwalk, Conn., says the project could end up revising the guidelines included in Statement Number 87, which deals with employers’ accounting for pensions, and Statement Number 106, which deals with employers’ accounting for postretirement benefits other than pensions.

In other FASB news, Paul Beswick, a FASB practice fellow, says questions about life settlement accounting have raised the possibility that FASB might come up with new rules for reporting the value of all life insurance policy purchases.

FASB is looking at retirement plan accounting rules because the U.S. Securities and Exchange Commission and FASB’s own advisory council members have complained about the current state of retirement plan financial reporting, FASB officials report.

“While the accounting and reporting issues do not appear to lend themselves to a simple fix, the board believes that immediate improvements are necessary and will look for areas that can be improved quickly,” FASB Chairman Robert Herz says in a statement.

FASB is hoping to complete one round of changes in 2006. That phase will focus on requiring employers to include information about the funding status of retirement plans in their balance sheets.

A second phase will cover topics such as rules for measuring retirement plan obligations and recognizing retirement plan costs in earnings reports.

Meanwhile, FASB is preparing to report Nov. 16 on efforts to update the accounting rules that apply to life settlement companies.

FASB decided Oct. 19 that it probably will let life settlement companies choose between using a fair value method or an investment method of accounting for life settlement purchases.

Under the old rules, given in FASB Technical Bulletin 85-4, life settlement companies have had to use the life insurance policy cash surrender value when determining how much a given policy is worth as an asset. Life settlement companies say that approach gives a low, inaccurate picture life policy values, because life settlement prices for policies are often much higher than the cash surrender values.

If life settlement companies can use a fair value accounting method, that may give them the ability to use life settlement market prices when valuing life policy assets.

Beswick said in New York Thursday at a conference organized by the Viatical and Life Settlement Association of America, Orlando, Fla., that some FASB officials now want to review Technical Bulletin 85-4 provisions that affect accounting for life policy values both inside and outside the life settlement arena.

The review could, for example, affect accounting for life policies that one partner in an automobile repair business might use to insure the life of a partner, Beswick said.


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