ASC 715-20-50: Domestic and Non-Domestic Pension Plans
Comment letters are now appearing for ASC 715, the accounting standard for retirement benefits. Many companies receive SEC comments citing ASC 715-20-50. Such comments commonly request more information about assumptions, reconciliation, funding, and the presentation and content of U.S. and non-U.S. plans.
Here is a specific SEC comment that popped up among multiple companies. This comment cites ASC 715-20-50-4 to a T:
Please tell us how you considered the disclosure requirements of ASC 715-20-50, in determining to combine your disclosures about pension plans or other postretirement benefit plans outside the United States with those for U.S. plans. Tell us whether the benefit obligations of the plans outside the United States are significant relative to the total benefit obligation and those plans use significantly different assumptions.
Some companies, such as Starrett L S Co. (NASDAQ SCX), answer this question in a single response. The SEC notes that Starrett referred to plans as "nondomestic" and "United Kingdom" plans in its annual filing, so the company first clarifies that both terms refer to the United Kingdom plan. Starrett L S also discloses its key assumptions for its non-U.S. plan and promises to divide foreign and domestic pension plans in future:
The key assumptions used to value non-US obligations are similar to those used to value US obligations. In particular, the discount rate at the most recent fiscal year-end was 5.37% for US plans and 5.40% for the non-US plan, the assumed average rate of salary increase was 2.64% for US plans as compared to 3.10% for the non-US plan, and the expected rate of inflation was 2.50% for US plans and 3.10% for the non-US plan. In future 10-K filings, we will separate domestic from foreign pension plans, including assets, liabilities and underlying assumptions as well as aggregate the obligations and assets.
Barnes Group Inc. (NASDAQ B) receives the same letter form but ends its correspondence after three rounds. Barnes Group Inc. responds to the SEC's initial comment, disclosing benefit obligations and assumptions for both US and non-US plans. The company claims that its non-U.S. benefit obligation does not requre separate disclosure.
The Company evaluates its U.S. and international pension and other postretirement benefit plans for aggregation annually. As of December 31, 2009, approximately $324 million (84%) of the $388 million total benefit obligation for pensions related to U.S. plans and approximately $53 million (96%) of the $55 million benefit obligation for other postretirement benefits related to U.S. plans. The discount rate assumption used to determine benefit obligations as of December 31, 2009 for the U.S. plans was 6.2% as compared to rates ranging from 5.7% to 6.4% for the majority of the international plans depending on the estimate of the rate at which the respective benefits could be settled in each particular country where the Company maintains such plans. Therefore, we believe the disclosure of the weighted-average actuarial assumptions used by the Company is appropriate. The Company has determined that the benefit obligations of its international plans, individually and in the aggregate, were not significant for separate disclosure and used substantially similar actuarial assumptions as the U.S. plans [...]
The SEC replies with the same question and demands more information:
Total percentage of international benefit obligations in 2008 and 2010
Long-term rate of return and increase in compensation assumptions
Comparison between international and US compensation assumptions
Comparison between discount rate assumptions for 2007, 2008, and 2010
Barnes Group Inc. answers the SEC by providing the requested details, but still defends its original disclosure:
The final benefit obligation and actuarial assumption information for December 31, 2010 is not yet available. However, the preliminary information indicated that the percentage of the total benefit obligation which related to international plans at December 31, 2010 is not significantly different than the percentages shown above. Based on the percentages set forth above, we concluded that the benefit obligations of the international pension and other postretirement benefit plans are not considered significant to the total benefit obligation as of December 31, 2009 and 2008. Therefore, in accordance with ASC 715-20-50-4, the Company has not separately disclosed information related to the international plans in Note 13 of the Annual Report on Form 10-K for the year ended December 31, 2009. To the extent the international plans become significant in the future and use substantially different actuarial assumptions, the Company will separately disclose such plans in accordance with ASC 715-20-50-4.
In its third and final comment, the SEC continues to disagree with Barnes Group Inc. The SEC summarizes its view of the situation, then provides an ultimatum: revise future filings or prove compliance with ASC 715-20-50-4 and provide underfunded status dollar amounts for both plans.
We have read your response to comment four from our January 6, 2011 letter. International plans comprise 15% percent of your total benefit obligation as of December 31, 2009. In 2009, your rate of return was 9% for U.S. plans and ranged from 5.8% to 6.4% for international plans. In 2009, your compensation rate for U.S. plans had a wide range of 3.25% to 7%, while the international plans had a much narrower range of 2.75% to 3%. These same differences exist in 2007 and 2008 as well. Please explain in greater detail how you concluded that your international plans were not significant to your total benefit obligation and that they do not use significantly different assumptions than your U.S. plans. If plan information is now available for 2010, please ensure that your response addresses it as well. Please also tell us the dollar amount of the underfunded status that relates to your U.S. and international plans as of each balance sheet date. Alternatively, please revise future filings to separately disclose your U.S. and international plan information. Refer to ASC 715-20-50-4.
Barnes Group Inc. promises to revise its future filings in its third response to end correspondence with the SEC. In contrast, Starrett L S agrees to revise future filings in its first and last response to the SEC. This seems the best way to make a long story ASU story short simply by utilizing others' compliance precedents.