GLOBAL - A study of European companies has found over 80% believe a proposal by the International Accounting Standards Board (IASB) to immediately recognise changes in the value of a pension plan's assets and liabilities on financial statements is "inappropriate".
Findings from a global survey of 131 finance and employee benefit directors conducted by Watson Wyatt showed 82% of employers believe improvements to pension accounting are necessary in relation to cash balance, career average or notional defined contribution (DC) schemes.
However, the proposal to immediately recognise changes to scheme's assets and liabilities in a company's profit and loss (P&L) account was considered inappropriate by 80% of the 131 respondents.
The findings showed 55% considered some immediate recognition appropriate provided the results are split between the profit and loss (P&L) account and a separate statement of comprehensive income.
But European companies had the strongest opinion on the proposal, as 82% claimed recognising the financial changes straight away would be inappropriate, while just 28% were against the idea of splitting the results between the P&L and a separate income statement.
Watson Wyatt revealed employers are also opposed to the IASB's other key proposals, as 50% are against the adoption of different measurement approaches for contribution-based schemes - such as cash balance, career average and notional DC - and defined benefit (DB) plans.
In addition, 54% of respondents do not believe the measurement of pension obligations should reflect credit risk, particularly in the United States where 78% said they felt this would be inappropriate, although 31%, mainly based in the UK, felt a credit risk allowance specific to the plan and company should be allowed.
The survey results also indicated opinion on an allowance for demographic uncertainty risk to increase obligations past a best estimate, as 43% are against the proposal and 24% are neutral, while over 50% of respondents were opposed to plans to change the treatment of in-payment benefits based on how they were defined as they were accumulated.
Overall, the findings revealed while the changes would not reduce most employers' commitment to pension schemes, 46% claimed the changes to cost recognition and a further 24% said changes to the measurement of contribution-based plans would "discourage them from offering DB schemes in the future".
Eric Steedman, senior international consultant at Watson Wyatt, said: "If implemented, the proposed changes could mean higher assessments of liabilities and increased volatility in employer financial statements.
"In order to develop a workable standard that supports employers continuing to offer pension plans, it will be critical for companies to communicate their concerns and engage the IASB in a dialogue on the proposal as it evolves into a final standard," he added.
The survey also showed only 20% of employers are extremely or very familiar with the IASB proposals, as more than 41% said they are only slightly or not at all familiar with the changes.
The UK and Europe are the best prepared, with only 10% of employers in these areas unaware of the IASB's views, compared to 34% of US respondents and 44% of employers in other regions.
Of those that are already familiar with the proposals, 36% have reviewed the paper to get a better understanding of the issue, while a further 46% plan to do so before the consultation period ends on 26 September 2008.
But as of early July, Watson Wyatt claimed, only 35% of companies had submitted or planned to submit a response to the discussion paper, albeit European companies were more likely to engage in the debate as 46% planned to submit their own comments to the IASB.
The survey findings highlighted the different priorities between employers and the IASB, as respondents claimed improvements in measuring cash balance and similar pension plans are most necessary, while Watson Wyatt said the IASB has indicated this might be a "lower priority" area going forward and the focus will be on changes to cost recognition, which employers claim will weaken the commitment to DB schemes.
In addition, 58% of the respondents believed requirements for the measurement of final salary and retiree medical plans should be improved - yet this is not an area included for discussion in the IASB paper - while 63% think disclosures for all schemes, regardless of type, should be improved, although these changes are more of a priority in Europe than the UK and US.
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