FASB issues new rules for pension plans

Under the rule issued by the Financial Accounting Standards Board, which sets US accounting rules, companies must provide a breakdown of assets held by their pension plans, such as equities, debt, and real estate. Companies must also disclose the target range for dividing pension plan assets among the different groups.

"With that information people will have a better understanding of what the potential investment risks are and therefore what the potential volatility might be for future earnings," said Peter Proestakes, project manager at FASB.

Pension accounting and the typically opaque and sparse disclosure on pension plans has drawn scrutiny as the bear market of the past three years pummeled pension assets and forced many companies to divert cash to prop up their plans.

Since companies are allowed to calculate pension income or costs based on a subjective estimate of the rate of return they expect to earn on their pension plan assets, critics have wondered if companies are using pension accounting to pump up profits.

FASB last year initially considering overhauling pension accounting rules, but then decided simply to improve disclosure on the topic instead.

FASB's initial discussions met with resistance from corporate America, and the board made a few concessions, including delaying the date for implementing certain parts of the rule. It also agreed not to require that companies provide expected rates of return separately for the different asset groups in which pension assets are invested.

Under the new rules, companies also have to estimate and disclose pension benefits to be paid out to employees for each of the next five years and an aggregate amount for the five years after that. They must also estimate contributions that must be made in the next year to fund pension and other post-retirement benefit plans.

Corporate America will also have to report pension and other post-retirement benefit costs on a quarterly basis, instead of just annually as previously required.