Wednesday, October 12, 2011

Union Contractors: Get Ready for New Disclosure Requirements

by Rachel Rico, Partner - SingerLewak

In September 2011, new accounting guidance,  Update No. 2011-9 -Compensation—Retirement Benefits—Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan, was finalized for Companies who participate in Multiemployer Plans.  Initially, the FASB put out its proposal September 1, 2010 through an exposure draft, and received over 300 responses or comment letters from various parties, including contractors, unions and other parties involved with such plans through November 1, 2010.  Without getting into the finer minutia of what the original proposal included, the final copy as released appeared to carefully consider the over 300 comment letters received and reduced the accounting and disclosure requirements as originally drafted.  
The guidance, as amended, is intended to provide additional qualitative and quantitative disclosures, i.e. transparency, with the goal of providing the financial statement users with more detailed information about the Company’s commitment to multiemployer plans and potential future cash flow implications of such commitment.  Companies will continue to effectively account for these plans a defined contribution plan recognizing and recording the actual cost for the period, plus any liability as of balance sheet date.
The old guidance required the following in the financial statements:
Company contribution amount to multiemployer plans for each annual period, without specifying the amounts attributable to pension plans and other postretirement benefit plans
Disclosure if possible or reasonably possibly of the Company’s withdrawal from the plan and if an obligation would arise, any shortfall contributions for negotiated benefit coverage 
The new guidance requires the following in the financial statements:
In a tabular format, the following information is required (see sample below taken from the guidance):
Legal Name of the Plan
The Plan’s Employer Identification Number (EIN), and it’s plan number if available
For each balance sheet date, the most recently available zone status as defined by the Pension Protection Act of 2006.  If the zone is not available, the Company should indicate the funded status.
The expiration dates of the collective bargaining agreements
For each statement of income, the Company’s contributions, identify if the Company’s contribution represent more than 5 percent of total contributions to the plan, and specify the year-end date of the plan.
As of the date of the most recent annual period, disclosure if a funding improvement plan or rehabilitation plan was implemented or pending, whether the Company paid any surcharges to the Plan, and a description of any minimum future contributions are required.

Sample of the Tabular Format

Expiration Date

Pension Protection Act
FIP/RP Status

of Collective 
EIN/Pension Plan
Zone Status
Company Contributions

ABC Fund 12
 $   250,000
 $   275,000
ABC Fund 34
 $   350,000
 $   400,000
ABC Fund 45
 $   450,000
 $   450,000

Plan's for which plan financial information is not publicly available outside of the Company's financial statements

ABC Fund 56 (1)
 $   175,000
 $   125,000

Total Contributions

FIP = Funding Improvement Plan

RP = Rehabilitation Plan

(1)  Plan Information for ABC Fund 56 is not publicly available.  ABC Fund 56  provides fixed retirement payments on the basis of credits earned
by the partipating employees.  However, if the event  that the plan is underfunded, the monthly benefit can be reduced by the trustees of the plan.
The Company is not responsible for the underfunded status of the plan because ABC Fund 56 operations in a jurisdiction that does not require
withdrawing participants to pay a withdrawl liability or other penalty.  The Company is unable to provide additional quantitative information on the plan
because the Company is unable to obtain that information without undue cost and effort.  The collective bargaining agreement of ABC Fund 56 requires
contributions on the basis of hours worked.  The agreement also has a minimum contribution requirement of $125,000 each year.

The Company should provide a description of the nature and effect of any significant changes that affect comparability of total Company contributions from period to period.
The information is the tabular format assumes the financial statement user can obtain information in the public domain.  If such information is not available, i.e. through Form 5500, the Company needs to provide additional disclosures to include the following:
Description of the nature of the plan benefits
A description of the extent to which the Company could be responsible for obligations of the plan, including benefits earned by covered employees while employed with another Company.
Other information to the extent available to help financial statement user understand the financial statement information about the plan.
In the event information can’t be obtained for certain required items mentioned above: (1) zone status, (2) whether the Company represents 5% of the total plan contributions, and (3) other information required when not available through the public domain without undue cost and effort, that information may be omitted and the Company should indicate that such information has been omitted and why.
Effective Dates: 
Non-public/private entities for annual periods for fiscal years ending after December 15, 2012; meaning for most will be effective for the December 31, 2012 financial statements.   
Public entities for annual periods for fiscal years ending after December 15, 2011; meaning for most will be effective for the December 31, 2011 financial statements.   
Early adoption is permitted for both and amendments should be retrospectively applied for all period presented.  
The requirements, while pushed back an additional year for non-public entities, will require an increase in information for companies with multiemployer plans to obtain from the one or more plans they are signatory to.  Gaining an understanding of the requirements now will help facilitate this transition and ensure your financial statements are not unduly delayed due to waiting on information to comply with your disclosures.

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