The National Association of Insurance Commissioners (NAIC) adopted Statement of Statutory Accounting Principles (SSAP) No. 92, Accounting for Postretirement Benefits Other Than Pensions (SSAP No. 92) and SSAP No. 102, Accounting for Pensions (SSAP No. 102) in March 2012. The effective date of adoption is January 1, 2013, with early adoption permitted. SSAP Nos. 92 and 102 supersede SSAP No. 14, Postretirement Benefits Other Than Pensions and SSAP No. 89, Accounting for Pensions, A Replacement of SSAP No. 8.
SSAP Nos. 92 and 102 adopt with modification Financial Accounting Standard No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FAS 87, 88, 106, and 132(R) (FAS 158). The primary focus of FAS 158 and SSAP Nos. 92 and 102 is to recognize the funded status of a defined benefit plan in the balance sheet. This is a significant change from previous guidance as it had not been uncommon for entities to recognize assets or liabilities that differed from the plans’ overfunded or underfunded status. Other items to note within the new pronouncements include:
- SSAP Nos. 92 and 102 require elements of plan costs to either be recognized as expense components during the current period, or as adjustments to surplus with future amortization into expense.
- The modifications from FAS 158 are standard modifications from generally accepted accounting principles to statutory accounting principles (e.g., nonadmission of assets, rejection of current/noncurrent classifications within the balance sheet, etc.).
- Transition options allow for recognition of the surplus impact over a period not to exceed 10 years, although the surplus impact as of January 1, 2013 must meet certain minimum amounts.
The requirements of SSAP Nos. 92 and 102 have a potentially material impact to surplus for many entities. As a result, entities are able to either recognize the full transition surplus impact for an unfunded plan as of January 1, 2013, or can elect to recognize the impact over a period of not more than 10 years, so long as the surplus impact as of January 1, 2013 is the greater of:
- 10% of the calculated surplus impact as of the transition date; or
- the reported amount of any unrecognized items (e.g., gains or losses, prior service costs or credits, remaining transition assets/obligation from prior application of statutory accounting principles that have not yet been included in net periodic cost).
If the deferral option is elected, entities shall recognize an annual liability over a period not to exceed 10 years. Minimum recognition requirements should be calculated annually in the same fashion as the initial year of adoption. The election comes with several additional disclosure requirements in quarterly and annual financial statements, until such time as the transition liability has been fully recognized. The liability may be fully recognized at any point even if the deferral option was initially elected.
SSAP No. 92 vs. SSAP No. 102
While the primary focus of the new pronouncements and the majority of the reporting/disclosure requirements are fundamentally similar, there are significant differences in the accounting for other post retirement plans and pension plans:
- Funded status for other postretirement plans is calculated based on the accumulated benefit obligation (ABO), which considers services rendered through a given date, whereas the funded status for pension plans is calculated based on the projected benefit obligation (PBO), which assumes future compensation levels.
- SSAP No. 102 includes a third transition component which considers the amount necessary to establish a total liability that is equal to the funded status using the ABO, as opposed to the PBO. In other words, if a pension plan has an unfunded ABO (ABO less the fair value of plan assets) that exceeds 10% of the surplus impact or the reported amount of any unrecognized items, the liability must be equal to the unfunded amount of the ABO.
The NAIC continues to develop specific examples that will assist entities in the adoption of SSAP Nos. 92 and 102. Entities should continue to monitor NAIC developments and should discuss with plan actuaries, as well as their accountants and advisors, the implications the adoption of SSAP Nos. 92 and 102 will have on their financial results for 2013. If you have questions regarding the adoption of SSAP Nos. 92 and 102, please connect with your accounting advisor.