Why Contractors Must Act Now on Multiemployer Pension Disclosures for FASB Compliance

All contractors (employers) utilizing union labor must participate in multiemployer pension programs. Employers pay monthly contributions based on hours worked by each covered employee at the contractual rate. Beyond making their required payments, employers have no control over the financial management of the union plans, which affects its funding status.  

Many union plans are severely underfunded, and the general public has concerns that employers have contingent exposure for these obligations. In response to these concerns, the Financial Accounting Standards Board (FASB) issued a pronouncement for years beginning in 2012 requiring certain financial statement disclosures, including information to be obtained from each union.  

Understanding FASB Disclosure Requirements for Multiemployer Plans  

The Pension Protection Act of 2006 requires unions to certify the funding status of their plan annually. Funding notices must be released 120 days after the plan year’s end and designate vital information on its funding status, whether the plan is endangered or at a critical status, and if the Pension Benefit Guarantee Corporation imposes surcharges. The funding status is defined as: 

• Green – 80% or more funded. 

• Yellow – More than 65% and less than 80% funded. 

• Red – Less than 65% funded. 

Organizations are required to disclose the information in their financial statements in a tabular format for all plans considered significant. That information must include: 

• The legal name of each plan. 

• Each plan’s employer identification number and plan number. 

• The most recently available certified zone status provided by each plan (see above). 

• The expiration date of each union’s current collective bargaining agreement. 

• Whether a funding improvement plan has been implemented, the employer paid a surcharge, and there are minimum contributions required for future periods. 

• For each period presented in the financial statements, the amount of employer contributions to each plan and whether the organization provided more than 5% of total contributions to any plan.  

The FASB pronouncement notes that organizations shall disclose each plan’s information based on its most recent public filings. Over the last ten years, most organizations became familiar with the requirements and adopted processes to obtain this information promptly. 

Importance of Early Preparation for Pension Plan Disclosures 

Rather than wait until the year-end reporting season to obtain this information, we recommend that organizations begin gathering the information as soon as possible. By law, the unions’ business offices must release this information to participating employers upon request; however, they are not required to release it quickly. A process should begin each fall to request and follow-up on requested information well before financial reporting deadlines. 

Handling Significant Changes in Employer Contributions 

The FASB pronouncement has also enhanced disclosure requirements for significant changes in employer contributions from year to year for business combinations and divestitures, changes in contractual employer contribution rate, and significant changes in the number of employees in a plan. We recommend that the disclosure requirements be considered as early as possible in the financial reporting plan during the coming year. In addition, employers must disclose the amount of contributions to multiemployer plans that provide post-retirement benefits other than pensions. 

Complying with Pension Plan Reporting

With FASB requiring more information reliant on third parties in your disclosures, the best course of action is to prepare now. Create a process to collect the required information well before the year-end, and your organization will be well-positioned to meet financial reporting deadlines.