Revised multiemployer disclosure requirements to impact contractors’ financial reporting

Construction contractors and subcontractors with union labor contracts need to be aware of upcoming changes to financial reporting requirements around their multiemployer pension plans. This article is intended to summarize those changes required by Accounting Standards Update no. 2011-09, Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan.

The Financial Accounting Standards Board (FASB) has issued this update to assist users of the financial statements in obtaining information regarding the commitments and risks involved with participating in multiemployer pension plans. Assets contributed by an employer are not specifically earmarked only for its employees. Therefore, the plan can use assets contributed by one employer to provide benefits to employees of other participating employers. If the plan becomes underfunded, the participating employers may be liable for the unfunded obligations. Also, if an employer chooses to stop participating in a multiemployer plan, the company may be required to pay a withdrawal liability to the plan.

The amendments in this update require disclosures to provide financial statement users additional information on the multiemployer plans in which the company participates. An earlier exposure document included a provision that would have required disclosure of employer withdrawal liabilities. The final guidance does not include this disclosure requirement.

For plans with publicly available annual reports (Form 5500), the new update requires that disclosures include the following information.

Plan identification

The disclosures should include the plan name and identifying number for any significant multiemployer plans in which an employer participates.

Level of participation

The disclosures regarding level of participation in the plan should include the amount of contributions made by the employer to the plan, and an indication of whether the employer’s contributions represent more than five percent of the total contributions made to the plan by all employers.

Financial health

The financial health of the plan should be expressed using the plan’s funded status, or zone status. The zone status is a color code which corresponds to a specified funded status. If no zone status is available, the disclosure must include the range listed below in which the plan’s funded status falls.

  • Red: less than 65% funded
  • Yellow: between 65% and 80% funded
  • Green: at least 80% funded

Employer commitments

The employer commitments to the plan should include disclosure of the expiration dates of the collective-bargaining agreements and a disclosure of any minimum contributions required to be made by the employer to the plan.

For plans without a publicly available annual report, employers are required to disclose all of the above information, along with certain additional information as follows.

Plan description

A description of the nature of plan benefits should be disclosed.

Responsibility for obligations

A qualitative description of the extent to which the employer could be responsible for obligations of the plan, including benefits earned by employees during employment with another employer, should be disclosed.

Plan financial information

Other quantitative information about the plan, to the extent available, is required to be disclosed. Disclosures should include information that will help users understand the financial information about the plan, such as total plan assets, actuarial present value of accumulated plan benefits, and total contributions received by the plan.

These new disclosure requirements are required for public entities for fiscal years ending after December 15, 2011 and for nonpublic entities for fiscal years ending after December 15, 2012. Early adoption is permitted, and the disclosures should be made for all prior periods presented.
Contractors should work with their financial advisor to understand how the disclosures will impact them and what information is required from providers.