Proposed Rules Assume Increased Importance Following Recent SEC Vote to Move U.S. Companies Toward International Accounting Standards
WASHINGTON, Sept. 4 /PRNewswire-FirstCall/ -- Employers believe changes to current pension accounting standards are necessary, but most are not in favor of the changes proposed in the International Accounting Standards Board's (IASB's) preliminary views paper, according to a recent survey by Watson Wyatt Worldwide, a leading global consulting firm. With last week's Securities and Exchange Commission's (SEC's) vote to move the United States toward international accounting rules, the proposed changes could have a significant impact on U.S. employers' financial statements.
In the survey of 131 finance and employee benefit directors across 17 countries, most respondents said change is needed in several key areas of pension accounting. Improvements to requirements for the measurement of cash balance and similar pension plans are viewed as most necessary, with eight in 10 employers desiring change in this area.
A narrower majority (56 percent) agrees with the IASB that pension accounting should change by removing options to defer the recognition of plan gains and losses. Eighty percent of respondents, however, do not support the IASB's suggestion to recognize all plan experience immediately in the profit and loss (P&L) account, one of three options the IASB is considering in this area.
"The IASB's proposal would make substantial changes to the way retirement benefits are accounted for under International Financial Reporting Standards," said Alan Glickstein, a senior retirement consultant at Watson Wyatt. "With the United States likely to adopt international standards, all U.S. companies would be well served to familiarize themselves with the proposals and assess the potential impact of the changes on their existing plans." Currently, there is low awareness of the IASB proposal among U.S. employers, with 34 percent identifying themselves as not at all familiar with the preliminary views paper. Across all regions, many companies familiar with the proposed changes to IAS19 -- the International Accounting Standard for employee benefits -- have yet to take action. As of early July, only 12 percent had analyzed or quantified the potential ramifications of the proposal on their plans. Forty-six percent, however, planned to learn more about the proposal and 51 percent planned to analyze its possible effects by September 26, 2008, the end of the IASB comment period.
While the changes would not reduce most employers' commitment to offering pension plans, sizeable minorities said the proposed changes to cost recognition (46 percent) and to the measurement of contribution-based plans (24 percent) would discourage them from offering defined benefit (DB) plans in the future.
"If implemented, the proposed changes could mean higher assessments of liabilities and increased volatility in employer financial statements," said John Steele, a senior retirement consultant at Watson Wyatt. "The more companies engage the IASB in a dialogue, the better. Providing early feedback could help influence the development of standards that might be adopted down the road." Other Findings -- Other proposed changes that are unpopular among employers include: -- Introducing the contribution-based promise, a new classification of
benefit that would include cash balance, career average, notional
defined contribution and flat dollar/multiplier plans. It would use
a different measurement approach than final average pay and retiree
medical plans, a change 50 percent of respondents find inappropriate
and 38 percent support. -- Requiring the measurement of pension obligations to reflect credit
risk, which 54 percent of employers find inappropriate and 29
percent support. -- Introducing different accounting treatment for in-payment annuities
based on how they were defined as they were accumulating, a change
53 percent of respondents find inappropriate and only 24 percent
support.
-- Employers have different priorities than the IASB: Employers believe improvements to requirements for the measurement of cash balance and similar pension plans are most necessary. The IASB has indicated that it might make this area a lower priority going forward and instead focus on changes to cost recognition, which are viewed as less necessary and less appropriate among employers. Additionally, 58 percent of respondents believe requirements for the measurement of final salary and retiree medical plans should be improved -- an area not addressed in the IASB's discussion paper.
Copies of the survey report, Accounting for Employee Benefits: Reactions to the IASB's Preliminary Views Paper From Around the World, are available at http://www.watsonwyatt.com/accountingreform. For more information on the IASB's proposal, Preliminary Views on Amendments to IAS19 Employee Benefits, visit http://www.watsonwyatt.com/news/globalnews2.asp?ID=18901&nm=Global.
About Watson Wyatt Worldwide Watson Wyatt (NYSE:WWNASDAQ:WW) is the trusted business partner to the world's leading organizations on people and financial issues. The firm's global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,000 associates in 32 countries and is located on the Web at http://www.watsonwyatt.com/. DATASOURCE: Watson Wyatt Worldwide CONTACT: Ed Emerman for Watson Wyatt Worldwide, +1-609-275-5162, , or Steve Arnoff of Watson Wyatt Worldwide, +1-703-258-7634, Web site: http://www.watsonwyatt.com/
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