Financial Reporting Considerations
Related to Pension and Other
This publication highlights some of the important accounting considerations related to the
calculations and disclosures entities provide under U.S. GAAP1 in connection with their defined
benefit pension and other postretirement benefit plans.
Disclosures Related to Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14,2 which amends ASC 7153 to add, remove, and
clarify disclosure requirements related to defined benefit pension and other postretirement
plans. The ASU’s changes related to disclosures are part of the FASB’s disclosure framework
project, which the Board launched in 2014 to improve the effectiveness of disclosures in notes
to financial statements.
ASU 2018-14 adds requirements for an entity to disclose the following:
The weighted-average interest crediting rates used in the entity’s cash balance
pension plans and other similar plans.
A narrative description of the reasons for significant gains and losses affecting the
benefit obligation for the period.
An explanation of any other significant changes in the benefit obligation or plan assets
that are not otherwise apparent in the other disclosures required by ASC 715.
Further, ASU 2018-18 removes guidance that currently requires the following disclosures:
The amounts in accumulated other comprehensive income expected to be recognized
as part of net periodic benefit cost over the next year.
Information about plan assets to be returned to the entity, including amounts and
Transactions resulting from the June 2001 amendments to the Japanese Welfare
Pension Insurance Law.
Information about (1) benefits covered by related-party insurance and annuity
contracts and (2) significant transactions between the plan and related parties.
(Entities separately need to provide the related-party disclosures required under
For nonpublic entities with Level 3 plan assets in the fair value hierarchy measured
on a recurring basis, a reconciliation of the opening balances to the closing balances.
(However, those entities would still need to disclose transfers of plan assets into and
out of Level 3 and any purchases of Level 3 assets by the plan.)
For public entities, the effects of a one-percentage-point change on the assumed
health care costs and the effect of this change in rates on service cost, interest cost,
and the benefit obligation for postretirement health care benefits.
The ASU’s amendments are effective for public business entities for fiscal years ending after
December 15, 2020. For all other entities, the ASU is effective for fiscal years ending after
December 15, 2021. Early adoption is permitted; however, all provisions of ASU 2018-14 must
be adopted if early adoption is elected. A retrospective transition method is required.
For more information, see Deloitte’s August 29, 2018, Heads Up.
Presentation of Net Periodic Benefit Cost
In March 2017, the FASB issued ASU 2017-07,4 which amends the requirements in ASC 715
related to the income statement presentation of the components of net periodic benefit cost
for an entity’s sponsored defined benefit pension and other postretirement plans.
Under current U.S. GAAP, net benefit cost (i.e., defined benefit pension cost and
postretirement benefit cost) consists of several components that reflect different aspects of
an employer’s financial arrangements as well as the cost of benefits earned by employees.
These components are aggregated and reported net in the financial statements.
ASU 2017-07 requires entities to (1) disaggregate the current-service-cost component from
the other components of net benefit cost (the “other components”) and present it with other
current compensation costs for related employees in the income statement and (2) present
the other components elsewhere in the income statement and outside of income from
operations if such a subtotal is presented.
The ASU also requires entities to disclose the income statement lines that contain the other
components if those components are not presented on appropriately described separate
Connecting the Dots
While ASU 2017-07 does not require entities to further disaggregate the other
components, they may do so if they believe that the information would be helpful to
financial statement users. However, entities must disclose which financial statement
lines contain the disaggregated components.
In addition, only the service-cost component of net benefit cost is eligible for capitalization
(e.g., as part of inventory or property, plant, and equipment). This is a change from current
practice, under which entities capitalize the aggregate net benefit cost when applicable.
The ASU’s amendments are effective for public business entities for interim and annual
periods beginning after December 15, 2017. For other entities, the amendments are effective
for annual periods beginning after December 15, 2018, and interim periods in the subsequent
annual period. Early adoption is permitted.
Entities must use (1) a retrospective transition method to adopt the requirement for separate
presentation in the income statement of service costs and other components and (2) a
prospective transition method to adopt the requirement to limit the capitalization (e.g., as part
of inventory) of benefit costs to the service cost component. Further, entities must disclose
the nature of and reason for the change in accounting principle in both the first interim and
annual reporting periods in which they adopt the amendments.
The ASU also establishes a practical expedient upon transition that permits entities to use
their previously disclosed service cost and other costs from the prior years’ pension and other
postretirement benefit plan footnotes in the comparative periods as appropriate estimates
when retrospectively changing the presentation of these costs in the income statement.
Entities that apply the practical expedient need to disclose that they did so.
For more information, see Deloitte’s March 14, 2017, Heads Up.
U.K. Pension Benefits — High Court of Justice Ruling on Equalization
On October 26, 2018, the High Court of Justice in the United Kingdom (the “High Court”) ruled
that Lloyds Bank plc was required to equalize benefits payable to men and women under its
U.K. defined benefit pension plans by amending those plans to increase the pension benefits
payable to participants that accrued such benefits during the period from 1990 to 1997. The
inequalities arose from statutory differences in the retirement ages and rates of accrual of
benefits for men and women related to Guaranteed Minimum Pension (GMP) benefits that
are included in U.K. defined benefit pension plans. In its ruling, the High Court also provided
details on acceptable alternative methods of amending plans to equalize the pension benefits.
All entities in the United Kingdom that offered GMP benefits during this period will need to
consider the applicability of the High Court’s ruling to their U.K. defined benefit pension plans.
While the potential impact of the ruling on any individual pension scheme will vary, current
preliminary estimates of the potential impact are between 0 percent and 4 percent of the
projected benefit obligation of a pension plan.
A separate Financial Reporting Alert will be issued on the accounting implications of the High
Court’s ruling. Entities with U.K. pension obligations should consult with their legal advisers,
actuaries, and independent accountants to discuss the accounting and financial reporting
impacts of the ruling.
Over the past few years, we have provided insights into approaches used to support discount
rates for defined benefit plans (e.g., hypothetical bond portfolio, yield curve, index-based
discount rate), as well as considerations related to how the discount rates should be applied
when an entity measures its benefit obligation. Recently, one of the most discussed emerging
issues related to discount rates for defined benefit plans has been the use of a more granular
approach to measure components of benefit cost. Considerations related to an entity’s
discount rate selection method, its use of a yield curve, and its measurement of components
of benefit cost are addressed below.
Discount Rate Selection Method
ASC 715-30-35-43 requires the discount rate to reflect rates at which the defined benefit
obligation could be effectively settled. In the estimation of those rates, it would be appropriate
for an entity to use information about rates implicit in current prices of annuity contracts that
could be used to settle the obligation. Alternatively, employers may look to rates of return on
high-quality fixed-income investments that are currently available and expected to be available
during the benefits’ period to maturity.
One acceptable method of deriving the discount rate would be to use a model that reflects
rates of zero-coupon, high-quality corporate bonds with maturity dates and amounts that
match the timing and amount of the expected future benefit payments. Since there are a
limited number of zero-coupon corporate bonds in the market, models are constructed with
coupon-paying bonds whose yields are adjusted to approximate results that would have been
obtained through the use of the zero-coupon bonds. Constructing a hypothetical portfolio
of high-quality instruments with maturities that mirror the benefit obligation is one method
that can be used to achieve this objective. Other methods that can be expected to produce
results that are not materially different would also be acceptable — for example, use of a yield
curve constructed by a third party such as an actuarial firm. The use of indexes may also be
Connecting the Dots
In determining the appropriate discount rate, entities should consider the following
SEC staff guidance (codified in ASC 715-20-S99-1):
At each measurement date, the SEC staff expects registrants to use discount rates
to measure obligations for pension benefits and postretirement benefits other than
pensions that reflect the then current level of interest rates. The staff suggests that
fixed-income debt securities that receive one of the two highest ratings given by a
recognized ratings agency be considered high quality (for example, a fixed-income
security that receives a rating of Aa or higher from Moody’s Investors Service, Inc.).
Entity’s Use of a Yield Curve
To support its discount rate, an entity may elect to use a yield curve constructed by an
actuarial firm or other third party. Many yield curves constructed by actuarial firms or other
third parties are supported by a white paper or other documentation that discusses how the
yield curves are constructed. Management should understand how the yield curve it has used
to develop its discount rate was constructed as well as the universe of bonds included in the
analysis. If applicable, management should also evaluate and reach conclusions about the
reasonableness of the approach the third party applied to adjust the bond universe used to
develop the yield curve.
We have been advised by some third parties, particularly those constructing yield curves
for non-U.S. markets (e.g., the eurozone and Canada), that because of a lack of sufficient
high-quality instruments with longer maturities, they have employed a method in which
they adjust yields of bonds that are not rated AA by an estimated credit spread to derive a yield representative of an AA-quality bond. This bond, as adjusted, is included in the bond
universe when the third party constructs its yield curve. Management should understand the
adjustments made to such bond yields in the construction of those yield curves and why those
adjustments are appropriate.
Recently, we have held discussions with actuarial firms regarding the incorporation of longerduration
bonds (bonds with stated maturities in the range of up to 80–100 years) in the
development of the yield curve. There is significant judgment involved in the development
of yield curves, particularly when longer-duration bonds are used, since there often are
no observable market rates across the full spectrum of maturities. Management should
understand and evaluate the reasonableness of how the additional bonds included in the
bond universe are evaluated for reliability of pricing by considering parameters such as
screening for potential outliers. In addition, management should understand and evaluate the
reasonableness of any revisions to the yield curve construction method in such circumstances
and conclude that the changes made are appropriate for the plan.
Measurement of Interest Cost Component
Since late 2015, a frequently discussed topic has been the alternatives for applying discount
rates under a bond-matching approach (sometimes also referred to as a hypothetical bond
portfolio or bond-model approach). In light of the SEC staff’s acceptance of the use of a
spot rate approach for measuring interest cost by entities that develop their discount rate
assumption by using a yield curve approach,5 entities and actuaries have explored whether
other acceptable methods similar to the spot rate approach could be developed for entities
that use a bond-matching approach to measure their defined benefit obligation. Specifically,
the alternative approach focuses on measuring the interest cost component of net periodic
benefit cost by using individual spot rates derived from an acceptable high-quality corporate
bond yield curve and matched with separate cash flows for each future year.
During the spring and early summer of 2016, representatives of the Big Four accounting firms
and a large actuarial firm engaged in discussions with the SEC staff regarding the viability of a
similar granular approach6 to measure interest cost for registrants that use a bond-matching
approach to support the discount rate. In an August 2, 2016, meeting, the SEC staff stated that
it objected to the approach presented because of the following factors:
The staff’s overall concern is that using such derived spot rates to measure interest
cost on the defined benefit obligation could not be demonstrated, at each maturity,
to be based on the same rates inherent in the measurement of the defined benefit
obligation under the bond-matching approach (i.e., the spot rates inherent in the
bond portfolio are not observable). Therefore, the proposed approach would fail to
comply with ASC 715-30-35-8, which requires entities to use the same interest rates to
measure the defined benefit obligation and interest cost.
The staff also expressed concern that the derived spot rates in the proposed
approach would be inconsistent with the reinvestment-rate assumption used in the
cash flow matching process that is part of building the cash flow matched hypothetical
bond portfolio used to measure the defined benefit obligation under a bond-matching
Connecting the Dots
We believe that in the absence of entity-specific changes in facts and circumstances,
it could be challenging to justify or support a change from a bond-matching
approach to a yield curve approach. Historically, entities have generally made
the switch only from a yield curve approach to a bond-matching approach, which
suggests that of the two methods, the bond-matching approach results in a
better estimate. This historical practice, along with the SEC staff’s position7 that
the acceptability of the spot rate approach would not by itself be a change in facts
and circumstances that justifies a change in approach to selecting discount rates,
reduces the likelihood that switching from a bond-matching approach to a yield
curve approach would be considered a better estimate in accordance with the bestestimate
objective of ASC 715. For further background on a change in approach to
determining discount rates, see Deloitte’s August 24, 2016, and December 21, 2015,
Financial Reporting Alert newsletters.
Many entities rely on their actuarial firms for advice or recommendations related to
demographic assumptions, such as the mortality assumption. Frequently, actuaries
recommend published tables that reflect broad-based studies of mortality. Under ASC 715-30
and ASC 715-60, each assumption should represent the “best estimate” for that assumption
as of the current measurement date. The mortality tables used and adjustments made (e.g.,
for longevity improvements) should be appropriate for the employee base covered under the
In 2014, the Retirement Plans Experience Committee of the Society of Actuaries (SOA)
released a new set of mortality tables (RP-2014) and a new companion mortality improvement
scale (MP-2014). Further, the SOA released updated mortality improvement scales MP-2015,
MP-2016, MP-2017, and, most recently, MP-2018, which reflect a continuing decline in the
observed longevity improvements since 2006.
Although entities are not required to use SOA mortality tables, the SOA is a leading provider of
actuarial research, and its mortality tables and mortality improvement scales are considered
by many plan sponsors as a starting point for developing their mortality assumptions.
Accordingly, it is advisable for entities, with the help of their actuaries, to (1) continue
monitoring the availability of updates to mortality tables, longevity improvement scales,
and related experience studies and (2) consider whether these updates, including IRS final
regulations (discussed below), should be reflected in the current-year mortality assumption.
Mortality Tables Used for IRS Tax-Qualified Plans
On October 4, 2017, the IRS issued final regulations8 prescribing mortality tables to be used
by most defined benefit pension plans. The purpose of these mortality tables is to determine
(1) the minimum funding requirements for a defined benefit plan and (2) the minimum
required amount of a lump-sum distribution from such a plan. The regulations became
effective on October 5, 2017, and apply to plan years beginning on or after January 1, 2018.
For defined benefit pension plans (particularly IRS tax-qualified plans) that permit settlement
of the obligation to an employee through payment of a lump sum at retirement, entities
generally compute the payment by using IRS-mandated tables in effect on the date of the
lump-sum payment. Similarly, for qualified cash balance plans, if an employee elects to convert
the lump-sum benefit amount at retirement to an annuity, the entity uses IRS-mandated tables to calculate the annuity. In making assumptions about either the amount of future
lump-sum benefits expected to be paid or any annuities expected to be paid that are related
to a cash balance plan, entities have questioned whether they should base these assumptions
on the IRS’s practice of annually updating the current tables with an additional year of
longevity improvement as well as on the IRS’s expected future adoption of new tables that are
updated on the basis of the latest available mortality tables published by the SOA.
We believe that there are two acceptable approaches under U.S. GAAP that entities can use to
account for the impact of the IRS’s expected adoption of revised mortality tables. Under one
view that we believe is supportable, entities would reflect their best estimate of the future IRS
tables, taking into consideration both the recent IRS regulations and the IRS’s history of annual
updates to its tables. This approach is consistent with the guidance in ASC 715-30-35-31,
which indicates that indirect effects on the amount of a benefit, such as future changes in
Social Security benefits or benefit limitations required by existing laws, should be taken into
account in the measurement of the defined benefit obligation (although amendments to a law
should not be anticipated).
Under an alternative view, entities would not anticipate future updates to the IRS-mandated
mortality tables in performing measurements related to lump-sum payments because the
IRS’s update to its mortality tables is akin to a new law or regulation, which should not be
anticipated. This view only pertains to the effects of the IRS’s update to its tables to be used
in compliance with the regulatory requirements for measuring lump-sum settlements for
tax-qualified plans and is not related to an entity’s determination of its best estimate of the
mortality assumption for those plans.
We believe that both approaches are acceptable under U.S. GAAP and that an entity should
be consistent in applying the chosen approach. However, if an entity chooses the alternative
approach of not incorporating the effects of new mortality data in its estimates of future
lump-sum settlements for an IRS tax-qualified plan and the results of applying the two
respective approaches are expected to differ materially, the entity should consider consulting
with its independent auditors.
Expected Long-Term Rate of Return
The expected long-term rate of return on plan assets9 is a component of an entity’s net
periodic benefit cost and should represent the average rate of earnings expected over
the long term on the funds invested to provide future benefits (existing plan assets and
contributions expected during the current year). The long-term rate of return is set as of the
beginning of an entity’s fiscal year (e.g., January 1, 2017, for a calendar-year-end entity). If the
target allocation of plan assets to different investment categories has changed from the prior
year or is expected to change during the coming year, an entity should consider discussing
with its actuaries and independent auditors whether an adjustment to its assumption about
the long-term rate of return is warranted.
Measurement Date of Plan Assets — Employer-Sponsored
In April 2015, as part of its simplification initiative,10 the FASB issued ASU 2015-0411 to amend
the measurement-date guidance in ASC 715. The ASU contains a practical expedient that
would allow an employer whose fiscal year-end does not fall on a calendar month-end (e.g.,
an entity that has a 52- or 53-week fiscal year) to measure retirement benefit obligations and related plan assets as of the month-end that is closest to the employer’s fiscal year-end. The
expedient would need to be elected as an accounting policy and be consistently applied to all
plans if the entity has more than one plan. Because third-party plan asset custodians often
provide information about fair value and classes of assets only as of the month-end, such
an accounting policy would relieve the employer from adjusting the asset information to the
appropriate fair values as of its fiscal year-end. Further, if the occurrence of a significant event
(e.g., curtailment or settlement) during the interim period requires an entity to remeasure
its defined plan assets and obligations, the practical expedient would allow the entity to
remeasure its defined plan assets and obligations by using the month-end that is closest to
the date of the significant event.
ASU 2015-04 should be applied prospectively. For public business entities, the ASU is effective
for financial statements issued for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. For all other entities, the ASU is effective for financial
statements issued for fiscal years beginning after December 15, 2016, and interim periods
within fiscal years beginning after December 15, 2017. Early adoption is permitted.
Other Postretirement Benefit Plans — Health Care Cost Trend Rate
and Discount Rate
ASC 715-60-20 defines “health care cost trend rate” as an “assumption about the annual rates
of change in the cost of health care benefits currently provided by the postretirement benefit
plan . . . . The health care cost trend rates implicitly consider estimates of health care inflation,
changes in health care utilization or delivery patterns, technological advances, and changes in
the health status of the plan participants.” The health care cost trend rate is used to project
the change in the cost of health care over the period for which the plan provides benefits to
its participants. Many plans use trend rate assumptions that include (1) a rate for the year
after the measurement date that reflects the recent trend of health care cost increases,
(2) gradually decreasing trend rates for each of the next several years, and (3) an ultimate
trend rate that is used for all remaining years.
Historically, the ultimate health care cost trend rate had been less than the discount rate. With
discount rates continuing to be at or near record lows, the discount rate for some plans is
below the ultimate health care cost trend rate. Some parties have raised concerns regarding
this phenomenon since expectations of long-term inflation rates are assumed to be implicit
in both the health care cost trend rate and the discount rate. In such situations, entities
should consider all the facts and circumstances of their plan(s) to determine whether the
assumptions used (e.g., ultimate health care cost trend rate of 5 percent and a discount rate
below that) are reasonable. Entities should also remember that (1) the discount rate reflects
spot rates observable in the market as of the plan’s measurement date, since it represents the
rates at which the defined benefit obligation could be effectively settled on that date (given
the rates implicit in current prices of annuity contracts or the rates of return on high-quality
fixed-income investments that are currently available and expected to be available during
the benefits’ period to maturity), and (2) the health care cost trend rate is used to project the
change in health care costs over the long term (which, as discussed above, includes the effects
of changes other than inflation).
Other Considerations Related to Assumptions
In measuring each plan’s defined benefit obligation and recording the net periodic benefit
cost, financial statement preparers should understand, evaluate, and reach conclusions
about the reasonableness of the underlying assumptions, particularly those that could
be affected by continuing financial market volatility. ASC 715-30-35-42 states that “each
significant assumption used shall reflect the best estimate solely with respect to that individual
Entities should comprehensively assess the relevancy and reasonableness of each significant
assumption on an ongoing basis (e.g., by considering the impact of significant developments
that have occurred in the entity’s business). Management should establish processes and
internal controls to ensure that the entity appropriately selects each of the assumptions
used in accounting for its defined benefit plans. The internal controls should be designed to
ensure that the amounts reported in the financial statements properly reflect the underlying
assumptions (e.g., discount rate, estimated long-term rate of return, mortality, turnover,
health care costs) and that the documentation maintained in the entity’s accounting records
sufficiently demonstrates management’s understanding of and reasons for using certain
assumptions and methods (e.g., the method for determining the discount rate). Management
should also document the key assumptions used and the reasons why certain assumptions
may have changed from the prior reporting period. A leading practice is for management to
prepare a memo supporting (1) the basis for each important assumption used and (2) how
management determined which assumptions were important.
Recent SEC Staff Views
The SEC staff continues to emphasize the disclosures related to how registrants account for
pension and other postretirement benefit plans and how key assumptions and investment
strategies affect their financial statements. Further, registrants may be asked how they
concluded that assumptions used for their pension and other postretirement benefit
accounting are reasonable relative to (1) current market trends and (2) assumptions used by
other registrants with similar characteristics.
Disclosures About Critical Accounting Estimates
Recent SEC staff comments have focused on inadequate disclosure of critical accounting
policies and estimates related to a registrant’s benefit plans. The SEC staff expects registrants
to provide robust disclosures of their critical accounting policies and estimates in MD&A
instead of duplicating documentation from the accounting policy disclosures in the financial
statement footnotes. In addition, the staff has indicated that it may be appropriate for a
registrant to disclose:
Whether a corridor is used to amortize the actuarial gains and losses and, if so, how
the corridor is determined and the period for amortization of the actuarial gains and
losses in excess of the corridor.
A sensitivity analysis estimating the effect of a change in assumption regarding the
long-term rate of return. This estimate should be based on a reasonable range of
How the registrant calculates historical returns to develop its expected rate of return
assumption. If use of the arithmetic mean to calculate the historical returns produces
results that are materially different from the results produced when the geometric
mean is used to perform this calculation, it may be appropriate for the registrant to
disclose both calculations.
The reasons why the expected return has changed or is expected to change in the
The effect of plan asset contributions during the period on profit or loss, when this
effect is significant. The SEC staff has indicated that additional plan asset contributions
reduce net pension costs even if actual asset returns are negative because the
amount included in profit or loss is determined through the use of expected,
as opposed to actual, returns. Consequently, such information can provide an
understanding of unusual or nonrecurring items or other significant fluctuations so
that investors can ascertain the likelihood that past performance is indicative of future
Disclosures About Discount Rate Assumptions
As discussed above, certain entities and their actuaries have started to use alternative
approaches for measuring the interest and service cost components of net periodic benefit
cost for defined benefit retirement plan obligations under ASC 715. As a result of these
alternative approaches, the SEC staff may comment on a registrant’s disclosures about the
approaches for measurement of interest cost, particularly when a change in approach occurs.
In discussions held in September 2015 with representatives of the Big Four accounting
firms, the SEC staff stressed that it is important for registrants to comply with the disclosure
requirements for changes in accounting estimates under ASC 250 and the discount rate
assumption under ASC 715. In addition, the staff highlighted the required MD&A disclosures
under SEC Regulation S-K, Item 303,12 as well as the transparency of required non-GAAP
disclosures under Regulation G. In accordance with these guidelines from the SEC staff,
entities should consider quantifying and disclosing the impact of a change in approach in the
year the change in estimate is recognized. In thinking about the financial statement disclosure
requirements related to assumptions under ASC 715 as well as disclosures by registrants
regarding critical accounting policies under Section II.J of the SEC’s Current Accounting and
Disclosure Issues in the Division of Corporation Finance (updated November 30, 2006), entities
should consider disclosing a narrative description of how assumptions (e.g., discount rates)
were determined along with the approach for how such assumptions have been applied.
Liquidity and Capital Resources
The SEC staff has encouraged registrants to explain the trends and uncertainties related to
pension or other postretirement benefit obligations (e.g., a registrant’s funding requirements
may be affected by changes in the measurement of its plan obligations and assets). A
registrant also may want to disclose in both qualitative and quantitative terms what its plan
contributions have been in the past and the expected changes to those contributions.
When commenting on other postretirement benefit plans, which are usually funded as the
related benefit payments become due, the SEC staff has noted that the footnote disclosures
should include the plan’s expected future benefit payments for each of the next five years
and in the aggregate for the five years thereafter. This information may provide insight into
a registrant’s expected liquidity requirements, which could then warrant discussion in the
liquidity section of MD&A or in the contractual obligations table.
In recent years, the SEC renewed its focus on non-GAAP measures resulting from concerns
about the increased use and prominence of such measures, the nature of the adjustments,
and the increasingly large difference between the amounts reported for GAAP and non-GAAP
measures. In response to increasing concerns about the use of non-GAAP measures, the
SEC’s Division of Corporation Finance updated its Compliance and Disclosure Interpretations
in May 2016, October 2017, and again in April 2018 to provide additional guidance on what
it expects from registrants when they use these measures.13 Some registrants present
non-GAAP measures that adjust for items related to defined benefit pension plans. For
example, a registrant may adjust to remove (1) all non-service-related pension expense, (2) all
pension expense in excess of cash contributions, or (3) the amortization of actuarial gains and
losses. Some registrants that immediately recognize all actuarial gains and losses in earnings
present non-GAAP measures that remove the actuarial gain or loss attributable to the
change in the fair value of plan assets from a performance measure and include an expected
return. The SEC staff has observed that these pension-related adjustments can be confusing without the appropriate context about the nature of the adjustment. The staff suggested that
registrants clearly label such adjustments and avoid the use of confusing or unclear terms in
The views presented in this publication are specific to U.S. GAAP. For entities that use another reporting framework such as IFRS®
Standards, preparers are encouraged to discuss the accounting implications with their advisers as appropriate.
Refer to Deloitte’s December 21, 2015, Financial Reporting Alert for further background on this topic and discussion of the relevant
considerations an entity should contemplate in connection with such a change.
Refer to Deloitte’s August 24, 2016, Financial Reporting Alert for further background on this topic, details of the approach presented,
and discussion of the relevant considerations in connection with the proposed approach.
See the December 9, 2015, speech delivered by Ashley Wright, then professional accounting fellow in the SEC’s Office of the Chief
Accountant, at the 2015 AICPA Conference on Current SEC and PCAOB Developments.
Launched in June 2014, the FASB’s simplification initiative is intended to reduce the cost and complexity of current U.S. GAAP while
maintaining or enhancing the usefulness of the related financial statement information. The initiative focuses on narrow-scope
projects that involve limited changes to guidance.