The implementation of Accounting Standards Codification 715 (ASC 715) in 2006 moved pension economics out of the footnotes and directly onto the financial statements of corporate America. The goal was to incorporate the net assets and liabilities of defined-benefit plans onto corporate balance sheets so that a company’s investors could gain a more transparent view of the financial impact associated with its pension plan. However, under the current Generally Accepted Accounting Principles (GAAP), plan sponsors can use a variety of techniques to smooth out that impact.

GAAP rules allow for delayed recognition on the income statement of gains or losses on pension plans’ assets and liabilities. Plan sponsors use an expected return figure that reflects their long-term expected returns on their current portfolio. Annual variances between expected and actual market returns are accrued in “accumulated other comprehensive income” (AOCI) on the balance sheet. Likewise, deviations from expected liability growth are accrued in AOCI. The AOCI amount is then amortized over time on the income statement, usually over the expected future working lifetime of plan participants. Plan sponsors are, in effect, shielded from a significant portion of the actual volatility of their pension assets and liabilities.

The goal of this technique is to decrease the year-to-year volatility of pension expenses on corporate financial statements, minimizing the impact of the pension plan on the core operations of the plan sponsor. This delayed recognition spreads immediate gains and losses into the future. As a result, corporate income statements have felt an ongoing drag in recent years, which may be significant for large pension plans. Today many plan sponsors are continuing to amortize pension losses they experienced during the 2008 financial crisis. For many with closed or frozen plans, these additional “costs” are related to legacy benefits that have no relationship to the organization’s current operations and cost structure. Plan sponsors are struggling with how to account for these legacy benefits and minimize pension plan expense volatility, while providing clarity to investors regarding the financial performance of their base operations.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Dig Deeper


Treasury & Risk

Join Treasury & Risk

Don’t miss crucial treasury and finance news along with in-depth analysis and insights you need to make informed treasury decisions. Join Treasury & Risk now!

  • Free unlimited access to Treasury & Risk including case studies with corporate innovators, informative newsletters, educational webcasts, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM publications including and

Already have an account? Sign In Now
Join Treasury & Risk

Copyright © 2023 ALM Global, LLC. All Rights Reserved.