Profile of Early Adopters: SFAS 106

Abstract

The Statement of Financial Accounting Standards No.106, Employers’ Accounting for Postretirement Benefitsother than Pensions is a dramatic change in how companies measure the cost of providing other post retirement benefits (OPEBs). Companies must change from pay‐as‐you go (cash‐basis) to an accrual method of accounting that is similar to that used for defined benefit pension plans.Our review of early adopters shows that most firms (59 out of 64) elected to recognize the transition obligation immediately, there by reducing current earnings and showing all the bad news in the first year of adoption. From an Income Statement viewpoint, the accrued based OPEB cost under SFAS 106 is 1.63 times larger than the previous year cash basis method, increasing from an average of $13 million to $21 million. From a Balance Sheet perspective, the average recorded liability as a percent of equity exceeds 15 percent. Since companies will adopt this standard over a long transition period, it may be several years before valid comparisons and conclusions can be made about the total impact of SFAS 106.