# Presentation: 682266

## Changes in ReportingContractor Pensions &Postretirement Benefits Other Than Pensions (PRB)FAS 158

## FAS 158

- 	FAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” amends accounting requirements for pensions (FAS 87) and PRB (FAS 106):
- Requires recognition of the “funded status” as a liability or asset.  The **“funded status”** is the difference between:
- Fair value of plan assets and PBO, for pensions
- Fair value of plan assets and APBO, for PRB
- Under the prior accounting requirements:
- delayed recognition of economic events (e.g., change in actuarial assumptions; prior service costs)
- funded status was _reported_ in the Department’s footnote disclosures rather than recognized
- *	Projected Benefit Obligation (PBO) and Accumulated Postretirement Benefit Obligation (APBO) represent the present value (PV) of the benefit obligations for pensions and PRB, respectively.

## FAS 158

- FAS 158 does not change underlying approach for measuring plan assets, benefit obligations, and net periodic costs.  (liability accrued over employees’ service period)
- Eliminates the alternative of a measurement date that could be up to three months earlier than yearend.  DOE is already in compliance!
- _Reason for the amendment/changes_ - The funded status at yearend better reflects the overfunded or underfunded status of a defined benefit pension/PRB plan.

## Funded Status Trend (net aggregate)

**Pension/Postretirement Benefits Liabilities Trend Analysis.**
- A 50 basis point increase from its historical low in the discount rate
- used to estimate contractor employee pension plan obligations was the
- primary reason for an improvement in the funded status from an under
- funding of more than $5.7 billion last year to an under funding of
- almost $4.5 billion in FY 2006 for these plans. The discount rate
- increase improved the funding by $2.5 billion, but was offset partially
- by the cost of additional benefits accruing and other losses during the
- year. A return to the pre-2002 levels of discount rates could
- significantly reduce or eliminate the unfunded pension obligation.
- A similar change in the discount rate used to estimate the obligations
- of contractor postretirement benefits other than pensions (PRB)
- improved the funded status by $1.0 billion, but was nearly offset by the
- cost of additional benefits accruing, higher than expected increases in
- the cost of medical care and other losses during the year. Assets are
- not generally set aside to fund PRB plans as they are for pension
- plans, so PRB plans are not expected to ever become fully funded.
- Changes in the estimated plan benefit obligations are generally
- amortized over an extended time period, and therefore do not result in
- an immediate change in unfunded liabilities recorded by the Department.
- However, the size and direction of changes in the funded status have
- significant implications for future funding and budgeting needs. The
- table below shows the funded status for contractor employee pension,
- PRB plans and the year-end discount rate from FY 1996 to FY 2006.

- FY 2006 Performance and Accountability Report

## Impact on DOE

- Year-end reporting
- An overall increase in DOE’s _recorded_ pension and PRB liabilities based on the September 30, 2006, funded status.
- Accounting Entries:
- Year-end adjustment for accounting change.
- Annual and quarterly entries are consistent with current guidance for recording pension and PRB costs.
- Retrospective application for prior years that are presented is not permitted.
- Departmental footnote disclosures will still highlight details of aggregated component information similar to DOE’s past footnote disclosures.
- Actuarial estimates; final estimates forwarded to the field by CR-50 prior to yearend.
- No change for interim (quarterly) reporting in FY 2007.

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## Impact on DOE

- Year-end financial disclosure information sheets will change:
- New (draft) disclosure sheets are designed to facilitate data collection and the actuarial firms hired by DOE contractors to develop the estimates.
- Key estimates will be highlighted for ease of transitioning to the new format.
- Field CFOs and POCs will be informed if any additional year-end guidance is necessary.

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## Future Changes and Other Influences

- FAS – phased approach.
- FAS 158 is Phase #1 of a comprehensive project to improve employers’ accounting for pensions and PRB.
- Phase #2 will likely be coordinated with aspects of pensions and PRB standards under the International Accounting Standards Board.
- FASAB – Accounting for Social Insurance.
- Pension Protection Act of 2006 – Accelerated pension contributions.

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