Summary

This Statement establishes financial reporting standards for defined benefit pension plans and for the notes to the financial statements of defined contribution plans of state and local governmental entities. Financial reporting standards for post-employment healthcare plans administered by defined benefit pension plans and for the pension expenditures/expense of employers are included, respectively, in two related Statements: No. 26, Financial Reporting for Post-employment Healthcare Plans Administered by Defined Benefit Pension Plans, and No. 27, Accounting for Pensions by State and Local Governmental Employers.

The standards in this Statement apply for pension trust funds included in the financial reports of plan sponsors or employers as well as for the stand-alone financial reports of pension plans or the public employee retirement systems that administer them. Reduced disclosures are acceptable for pension trust funds when a stand-alone plan financial report is publicly available and contains all required information.

This Statement establishes a financial reporting framework for defined benefit pension plans that distinguishes between two categories of information: (a) current financial information about plan assets and financial activities and (b) actuarially determined information, from a long-term perspective, about the funded status of the plan and the progress being made in accumulating sufficient assets to pay benefits when due.

Plans should include information in the first category in two financial statements: (a) a statement of plan net assets that provides information about the fair value and composition of plan assets, plan liabilities, and plan net assets and (b) a statement of changes in plan net assets that provides information about the year-to-year changes in plan net assets. The requirements for the notes to the financial statements include a brief plan description, a summary of significant accounting policies, and information about contributions, legally required reserves, and investment concentrations.

Information in the second category should be included, for a minimum of six years, in two schedules of historical trend information that should be presented as required supplementary information immediately after the notes to the financial statements. The required schedules are (a) a schedule of funding progress that reports the actuarial value of assets, the actuarial accrued liability, and the relationship between the two over time and (b) a schedule of employer contributions that provides information about the annual required contributions of the employer(s) (ARC) and the percentage of the ARC recognized by the plan as contributed. Note disclosures related to the required schedules should be presented after the schedules and should include the actuarial methods and significant assumptions used for financial reporting.

Plans may elect to report one or more years of the information required for either or both schedules in an additional financial statement(s) or in the notes to the financial statements. Information for all required years also should be reported as required supplementary information, unless all years are included in the additional statement(s) or notes.

Plans should measure all actuarially determined information included in their financial reports in accordance with certain parameters. The parameters include requirements for the frequency and timing of actuarial valuations as well as for the actuarial methods and assumptions that are acceptable for financial reporting. When the methods and assumptions used in determining a plan's funding requirements meet the parameters, the same methods and assumptions are required for financial reporting by both a plan and its participating employer(s).

This Statement requires the notes to the financial statements of defined contribution plans to include a brief plan description, a summary of significant accounting policies (including the fair value of plan assets, unless reported at fair value), and information about contributions and investment concentrations.

The provisions of this Statement are effective for periods beginning after June 15, 1996. Early implementation is encouraged; however, Statement 26, if applicable, should be implemented in the same fiscal year.