(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of SEC Today.)

Staff Updates Guidance On Pension Plan Disclosure

The Division of Corporation Finance last month updated its guidance relating to pension, post-retirement and post-employment plans. The staff outline on current accounting and disclosure issues covers the selection of discount rates under FASB Statement N os. 87 and 106 and disclosure about assumptions and estimates, MD&A, the comparison of actual and expected results, and funding obligations.

The calculation of a projected benefit obligation must include a discount rate that reflects the rate at which the pension benefits could effectively be settled, according to the staff. The assumed discount rate should be based on a single sum that would generate the necessary cash flows to pay the benefits when due if invested at the measurement date. One method for determining the assumed discount rate is to create a hypothetical portfolio of high quality bonds in which the timing and amount of cash outflows approximates the estimated payouts of the defined benefit plan.

The staff advised that it expects registrants with material defined benefit plans to include clear disclosure about how they determined the assumed discount rate. The information can be disclosed in the financial statement footnotes or in the critical accounting policies section of MD&A. The disclosure should include the specific source data used to support the discount rate.

The MD&A should provide information, to the extent that it is material, about the nature of the plans, the character of deferred gains and losses, the degree to which assumptions have reflected actual experience, and the timing and amounts of future funding requirements. Registrants should also disclose the effects of accounting for their benefit plans, and the funding of the accumulated and projected benefit obligations on their financial condition and operating performance.

The MD&A should identify the material assumptions underlying the accounting for benefit plans, according to the guidance, and any changes to those assumptions that will have a material effect on financial condition and operating performance. The staff urged registrants to include comprehensive footnote disclosure in their financial statements about their accounting policies and to minimize repetitious information.

Registrants should consider the impact of various assumptions and the extent to which they may have a material effect, including long-term rates of return on plan assets, discount rates used to project benefit obligations and methods of deriving market-related value. They should also consider the average remaining service period and life expectancy, and any alternate methods of amortizing gains and losses.

The staff advised that when material deviations occur between the actual and expected long-term rates of return on plan assets, registrants should disclose the amounts along with any material deferred gains or losses. In discussing the expected and actual long-term rates of returns on plan assets, registrants should include the various categories of investments that are held as plan assets, the holdings in each category and any likely changes in allocations. Registrants may have to conduct a sensitivity analysis to demonstrate the impact of a change in assumed long-term rates of return.

If a registrant has material funding obligations, it should quantify the amounts, disclose any known trends or uncertainties relating to the payment of the amounts, address the impact of future payments on future cash flows, and address any material uncertainty in the funding obligation. The staff advised that, if registrants are having financial difficulties, they may face uncertainty about the future funding of their pension obligations if bankruptcy is a possibility. These registrants should disclose the nature of the uncertainty and the range of possible future funding, which may include the statutory termination obligation.