Sfas 158

SFAS 158

For some time now, the way that pensions have been accounted for and reported, has been a topic of discussion by the FASB. The board has felt that the previous standards of accounting for defined benefit pensions were not very understandable or complete. That is the reason for SFAS 158. This statement is the first of possibly many, to reorganize the way that defined benefit pensions are reported.

There are two different types of pensions, a defined benefit plan and a defined contribution plan. A defined benefit pension plan is a retirement plan that promises the retiree a certain amount of money (or other benefits), calculated by amount of time at the job, salary, or a combination of the two. Participants of a defined benefit pension plan may or may not be required to make contributions to receive the benefit. A defined contribution plan is based on the amount the employee contributes into an account throughout his or her life, until retirement. This plan is not guaranteed to equal any certain amount of benefit. The amount of this kind of account will be determined by investments chosen by the individual, such as mutual funds or bonds. Examples of this type of pension plan are the 401K and 403b.

This new standard amends or completely changes previous statements released by the FASB. The previous statements that have been amended are statement 87, 88, 106, and 132R. Some of the changes to these statements are, recognized gains or losses must be stated in the other comprehensive income portion of the financial statements. Also that the over funding of pensions will be classified as an asset and an under funded pension will be stated as either a current liability or liability, instead of an asset. Another big change is that the amount will be reported at projected benefit obligation instead of accumulated benefit obligation. A Not-for-Profit organization will do the same, but if they do not report other comprehensive income, they...