The soon-to-be-effective Accounting Standards Update (ASU) 2017-07 makes changes to the way pension plans are accounted for, designed to improve the transparency of pension plan operational costs. Under the old rules, all components of pension-related expenses were aggregated together as operating cost. These expenses consist of service cost, interest cost, expected return on assets, amortization of actuarial gains/losses, amortization of prior service costs, and recognition of curtailments and settlements.
Combining everything under operational costs had the potential to increase volatility of operating results in the eyes of lenders, credit agencies and investors. Beginning in 2018 or 2019, depending on the company’s fiscal year end, only the service cost (the value of benefits earned during the year) will remain as an operating cost, and all other line items will move to non-operating costs. The separate treatment of non-operating pension expenses should result in more transparency of compensation and operations within the income statement, and explain true operating results separate from special pension items.
BTO Accounting and Dietrich recently put out a white paper on this topic that does a good job of summarizing these changes. You can read the full white paper here.