The subject of accounting rules for all businesses that contribute to defined benefit pension plans would draw a yawn from most everyone, but a new set of proposed guidelines for them would be “onerous and potentially devastating” according to a notice being circulated among union accountants and lawyers.

An industry group called the Fair Accounting Standards Board (FASB) is proposing new rules for employers to report “qualitative and quantitative multi-employer plan exposure.” Translated, that could require building trades employers to include 16 separate disclosures on their financial reports about each plan their company participates in.

One of the major problems here for building trades employers, said John Tesija, an attorney for a dozen Michigan-based pension plans, is that they would turn a contingent potential liability into something that appears to be more ominous, not to mention the additional paperwork and bookkeeping obligations.

In essence, employers that contribute to multi-employer plans, like those in the building trades, would unfairly be held to the same rules as those that govern single employers with a single pension plan.

In the construction industry, pension plans can’t currently assess withdrawal liability against an employer that stops contributing if, for example, that employer simply goes out of business.  Instead, only employers which go nonunion, within a five-year window, can be assessed with withdrawal liabilities. The new FASB rules would turn this potential liability into an obligation that is reportable on the employer’s financials, making them look worse than they do now.

“This rule would have a tremendously negative impact on building trades contractors, and turn balance sheets into a disaster,” said Tesija.  Securing bank financing, or even bonding, would be that much harder, as if it wasn’t hard enough already.”

The FASB is not a government agency, it is an industry group that governs how auditors perform audits. This process began at the March 17, 2010 Fair Accounting Standards Board Board meeting, when the FASB chairman announced the addition of a new “project” aimed at “expanding disclosures about an employer’s participation in a multi-employer plan” (which includes pension and other post-retirement benefits).

The project, the FASB said, was added in response to “concerns” raised by several constituents about the current lack of information in multi-employer financial statements, beyond the contributions made, about an employer’s participation in a multi-employer plan. Additionally, the FASB said, several users have published reports highlighting these concerns, including the potential for increases in contributions as a result of plans being under-funded. The funded status of many of these plans deteriorated significantly during the financial crisis of 2008 when plan asset values dropped significantly.

“It is envisioned that expanded disclosures would enable users of financial statements to better assess the risks a reporting entity faces by participating in a multi-employer plan,” the FASB said. The Associated General Contractors Tax Committee is monitoring developments at the FASB, as are a number of accountants in the building trades. They have a number of other concerns about the new bookkeeping proposals, including:

*Adding information to financial statements – likely to be overwhelmingly negative, given the current financial status of the funds and the economy – will make it even more difficult for employers to obtain credit and bonding.

*The financial information is seen as “mostly speculative,” said the notice that’s being circulated to the unionized employers, and “predicting the size of a liability and the probability of it occurring in this context is less than objective.”

*The organized construction industry is a completely different animal compared to single-employer pension plans (like GM’s or Ford’s). Multi-employer pension plans spread risk among multiple employers, so that if one employer goes bankrupt, the entire pension plan structure stays afloat through contributions from other employers. That set-up virtually eliminates liability for individual employers, unless the whole plan goes under or if the employer goes nonunion. As a result, the added bookkeeping rules would place an unfair burden on those individual employers.

*There’s a likewise large burden placed on plans to supply required information to all participating contractors.

*The law of unintended consequences comes into play– how will the organized building trades be affected by new financial transparency rules that haven’t been deemed necessary all these years?

“I heard from the owner of a mill shop today who said that if he had to put this information on his balance sheet, his company would be done, he’d have to close his doors,” Tesija said. The company would lose its line of credit and any hope of being bonded.  “That’s why it’s important for people in the trades to let FASB know that these proposed regulations could have a devastating effect on their employers, and that FASB should stop this process.”

Following is contact information for the Financial Accounting Standards Board
401 Merritt 7
P.O. Box 5116
Norwalk, Connecticut 06856-5116

Or, to e-mail members of the FASB Board:

Robert Herz rhherz@fasb.org

Thomas Linsmeier tjlinsmeier@fasb.org

Leslie Seidman lfseidman@fasb.org

Marc Siegel masiegel@fasb.org

Lawrence Smith lwsmith@fasb.org