How will individual cost-sharing employers determine the portion of the cumulative net pension liability, pension expense, and pension-related deferrals that they should recognize in their own financial statements?
The individual cost-sharing employers portion of the cumulative plan-wide pension amounts will be determined by measuring the cost-sharing employer against all of the governments participating in the plan in total. The Statement encourages the proportion to be determined as follows:
Employer’s projected long-term contributions to the plan
However, the calculation may be based on other factors that are relevant to how contributions to the plan are determined. For instance, if a plan assesses a flat amount per active employee covered by the plan, a cost-sharing employer’s percentage might be determined by dividing the employer’s number of covered employees by the number of covered employees for all participating employers.
Projected long-term contributions to the plan by all employers
and other entities on behalf of those employers
However the percentage is determined, the cumulative net pension liability, pension expense, and pension-related deferrals would be multiplied by the percentage to arrive at the “proportionate shares”—the amounts that the cost-sharing employer will report in its own financial statements.
It is possible that a cost-sharing employer’s percentage may change from one year to the next. A cost-sharing employer will include in its pension expense the effect the changing percentage has on its proportionate shares of the cumulative net pension liability and pension-related deferrals. As with experience gains and losses, for example, the effect will be introduced into expense in increments over a period equal to the average remaining years of service of all members of the plan (both current employees and retirees).