Accounting Panel Votes to Pursue Clearer Disclosure on Pensions

The nation’s accounting standards board voted Thursday to move ahead with a broad overhaul that would require companies to more fully disclose the financial health of their pension plans.

The Financial Accounting Standards Board approved a project expected to lead to new rules requiring companies to report their pension obligations on their balance sheets.

Critics say the current rules allow companies to obscure their obligations to employees in footnotes, manipulating the profits they report to investors.

“The project intends to make it easier for investors, employees and retirees to understand and assess a company’s financial position as well as its ability to carry out the obligations of its pension and post retirement benefits,” said Gerard Carney, an FASB spokesman.

FASB officials said the new rules could result in hundreds of billions of dollars in defined-benefit pension obligations being shifted onto balance sheets. Such a change would help workers and retirees determine whether an employer can meet its pension obligations, officials said.

The board decided to undertake the project in two phases.

The initial phase, to be completed by the end of 2006, will focus on improving transparency by requiring the funded or unfunded status of pension plans be recognized on the balance sheet.

“It’s long overdue,” said J. Edward Ketz, an accounting professor at Pennsylvania State University. “They’re moving in the right direction in terms of studying the issue. We’re not 100% sure what they will do as a final rule.”