Meet your evolving needs with three integrated business lines in one professional services firm.
Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor.
Contractors: Start Preparing for the Multi-Employer Pension Plan Disclosures
The Financial Accounting Standards Board's disclosure requirements for multi-employer pension plan participants are another step on the path to greater transparency. For most contractors, the first period this applies is the year ending December 31, 2012, so it is time to start preparing for the requirements. Depending on a variety of factors, making the plan significance determinations and gathering the necessary documentation may be an involved process; don’t want until February to evaluate how these requirements will impact you.
Determining “significant” plans
The expanded disclosure requirements only apply to post-retirement plans that are deemed to be significant to the contractor. Accordingly, your first step will be determining which individual plans are significant enough to necessitate the additional disclosures.
Significance determination is based primarily on “financial statement materiality” guidelines. Generally, information is material if the omission or misstatement on a financial statement is likely to influence the user’s economic decisions. Although the primary test is whether your contributions to the plan are material in a given period, other objective calculations and subjective factors (such as PPA zone status, funding improvement plans or likelihood of surcharges) should be part of this determination process. Most contractors could simply rattle off the plans they participate in that are likely subject to the new rules; however, the process of determination should be formal and well documented. The completeness and accuracy of disclosures are subject to audit or review by your CPA, so your accountant will need to understand how you arrived at the assessment and be able to determine that your evaluation and conclusions were reasonable.
To start this process, review the pool of deposits you’ve made over the past few years and break them down by union fund to determine which are significant. If you work with multiple unions across multiple jurisdictions, gathering the documentation will be a challenge, so start early. Consult with your industry-specialized CPA early to ensure there are no surprises down the road.
Accumulate necessary information
The vast majority of required information should be available from documents received in the ordinary course of business, such as the annual fund reports, funding notices, collective bargaining agreements, and Forms 5500. If such information cannot be located, it may take time and expense to request duplicate copies. Accordingly, those requests should be made as soon as possible so as to not cause a delay in the issuance of year-end financial reports.
If such information cannot be obtained without undue cost and effort, then that information may be omitted from the disclosures. However, your disclosures must describe what financial information was omitted and why.
Prior year information needed for comparative presentation
While 2012 is the first year these rules apply, contractors should know it also applies to any comparative years presented. Accordingly, if you have two-year comparative financial statement presentation, you will need make the significance determination, gather and report the relevant information for both periods. For example, a plan may not be significant this year, but if it was significant last year, you have to make sure those disclosures are in the financial statements.
Keep the following in mind as you work toward this compliance requirement:
- This disclosure only applies to post-retirement benefit (pension) funds — vacation funds, health and welfare, and other fringe benefits are not included.
- Summarize pension plan participation and make significant plan determination early.
- Evaluation and consideration must be made for each period presented; conclusions should cover all periods.
- Avoid issuance delays and request missing documentation early.
- Consult with your industry-specialized CPA and get their buy-in on your determination conclusions.
- Gather, organize, and maintain documentation supporting plan significance and the required information covered by the disclosure.
Use this sample disclosure table to help you get started.
While complying with this requirement will be cumbersome for some contractors, with proper planning and coordination with your CPA it should not cause too much pain. The good news is that most of the information necessary to include in these disclosures is available now, so it is a good project to tackle before getting caught up on the craziness of the year-end closing process.