FASB Issues Guidance on Presentation of Net Periodic Pension and Postretirement Benefit Costs

The Financial Accounting Standards Board (FASB) issued new guidance improving the presentation of net periodic pension cost and net periodic postretirement benefit cost.

The FASB issued Accounting Standards Update No. 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” on March 10. It applies to all employers, including not-for-profit entities, that offer to their employees defined benefit plans, other postretirement benefit plans or other types of benefits accounted for under FASB Topic 715.

Specifically, the amendments in the Update state that:

• an employer report the service cost component of net benefit cost in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period;

• an employer present the other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.

• if a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described;

• if a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed; and

• only the service cost component is eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset).

Effective Dates and Application

The amendments in Update 2017-07 are effective for public business entities for annual periods beginning after Dec. 15, 2017, including interim periods within those annual periods. For other entities, the amendments are effective for annual periods beginning after Dec. 15, 2018 and interim periods within annual periods beginning after Dec. 15, 2019.

Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. That is, early adoption should be within the first interim period if an employer issues interim financial statements. Disclosures of the nature of, and reason for, the change in accounting principle are required in the first interim and annual periods of adoption.

The amendments in Update 2017-07 should be applied:

• retrospectively for the presentation of the service cost component and the other components of net periodic pension and postretirement benefit costs in the income statement; and

• prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets.

The amendments allow a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. An employer must disclose that the practical expedient was used.