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Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

 

OVERVIEW
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-07, Compensation—Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.

This update requires that an employer report the service cost component of net benefit cost within the same line item(s) in the income statement as other compensation costs arising from services rendered by employees. Other components of net benefit cost should be presented separately from the service cost component, and outside a subtotal of income from operations, if one is presented. If separate line item(s) are used to present the other components of net benefit cost, those line item(s) must be appropriately described. If separate line item(s) are not used, the line item(s) used in the income statement to present the other components of net benefit cost must be disclosed.

Also pursuant to the amendments, the service cost component is the only component of net benefit cost eligible for capitalization, when applicable, as part of an asset such as inventory.

FASB noted that the service cost component of net benefit cost is conceptually different from other components, and issued these amendments in response to various stakeholder concerns about current reporting:

  • Inconsistent presentation of certain components of net benefit cost, and
  • A combination of heterogeneous elements of defined benefit cost, reducing transparency

The amendments are effective for public business entities for annual periods (including interim periods within the annual periods) beginning after December 15, 2017. For all other entities, the amendments are effective for annual periods beginning after December 15, 2018, and interim periods with annual periods beginning after December 15, 2019. Early adoption is permitted.

 

IMPACT
This update applies to accounting by all employers subject to FASB guidance that offer defined benefit pension plans, other postretirement benefit plans or other types of benefits accounted for under Topic 715.

 

KEY TAKEAWAYS:

  • Pursuant to the new guidance, the service cost component of net benefit cost should be reported in the same line item(s) as other compensation costs arising from services rendered by employees.
  • Other components of net benefit cost should be reported separately from the service cost component, and outside a subtotal of income from operations, if one is presented.
  • Only the service cost component of net benefit cost is eligible for capitalization, where appropriate.

 

Entities subject to ASU 2017-07 should allow time to become familiar with its requirements. For additional information, reference the full text of the guidance or contact your relationship manager.

 
Robert Angel

Robert Angel

Head of Regulatory Services, Product Solutions Group, EMEA
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Robert Angel

Robert Angel

Head of Regulatory Services, Product Solutions Group, EMEA
 
Robert joined Northern Trust in September 2013 as head of Regulatory Services, Product Solutions Group, EMEA. The Regulatory Services team acts as a consolidated point of contact on our portfolio of regulatory projects, with responsibility for regulatory client communication, and the services and products that Northern Trust can offer our clients in the regulatory space.
 
Prior to joining Northern Trust, Robert spent over 16 years at Merrill Lynch (now Bank of America Merrill Lynch) in Prime Brokerage and during this time ran the hedge fund client service, client consulting, product development and client on-boarding teams.

 

 

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