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ASC 715-80 defines a multiemployer plan as a pension or postretirement benefit plan to which two or more unrelated employers contribute, usually pursuant to one or more collective-bargaining agreements. A characteristic of multiemployer plans is that assets contributed by one participating employer may be used to provide benefits to employees of other participating employers since assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. A multiemployer plan is usually administered by a board of trustees composed of management and labor representatives and may also be referred to as a “joint trust” or “union plan.” Generally, many employers participate in a multiemployer plan, and an employer may participate in more than one plan. The employers participating in multiemployer plans usually have a common industry bond, but for some plans the employers are in different industries and the labor union may be their only common bond. Some multiemployer plans do not involve a union. For example, local chapters of a not-for-profit entity may participate in a plan established by the related national organization.
A key characteristic of a multiemployer plan is that the plan's obligation to retirees continues even if a former employer discontinues its participation in the plan.

5.2.1 Accounting for multiemployer plans

ASC 715-80-35-1 requires expensing the required contribution for all multiemployer plans, similar to the accounting for defined contribution plans. An employer accounts for its participation in a defined benefit multiemployer plan generally as if it were a defined contribution plan. As a result, a participating employer recognizes as net pension cost its required contribution for the period and generally recognizes a liability for any required contributions that are due and unpaid. There is generally no accrual for future contributions. As the guidance on classification of benefit costs (described in PEB 3.2) only applies to plans subject to ASC 715-30 and ASC 715-60, the entire net pension cost for a multiemployer plan is viewed as an employee benefit cost and classified with other similar costs.
When an employer enters a multiemployer plan or improves the benefits under the plan, it unconditionally promises to pay specified future contributions to the plan. In return, the plan unconditionally promises to pay retirement benefits to the employer's covered participants in the plan. ASC 715-80-55-2 indicates that, under an arrangement of this nature, an employer is not required to report a liability beyond the contributions currently due and unpaid. This guidance does not, however, preclude an employer from recording a liability for specified future contributions (a) it promised to make upon entering a multiemployer plan or (b) to cover the cost of improved benefits under the plan.
Employers occasionally receive notices from the multiemployer plan describing future increases (or potential increases) in the employer's contributions. In some cases, these increases may be due to funding rules under the Pension Protection Act of 2006 that require automatic surcharges on employer contributions for plans in "critical status." In other cases, the plan may be notifying the participating employers that additional funding related to past or future service will or may be required to make up a funding deficit. Whether a liability should be recognized for an increase in future contributions should be determined based on the specific facts and circumstances. The employer is generally required to record a liability under ASC 715 and ASC 450, Contingencies, only if the increased future contributions are probable and relate to periods covered by the financial statements (or earlier periods). For example, if the plan notifies an employer of an increase representing a "catch-up" adjustment of amounts previously paid, the employer should record a liability for the increase. Even if the employer is not required to recognize a liability, increases in future employer contributions that are reasonably possible should be disclosed under ASC 450.

5.2.2 Multiemployer plans — withdrawal liabilities

A characteristic of a multiemployer plan is that its obligation to retirees continues even if a particular employer discontinues its participation in the plan. When an employer stops actively participating in a multiemployer plan, the employer is said to withdraw from the plan. This may occur as a complete or a partial withdrawal. A "complete withdrawal" occurs when the employer (including all controlled group members) permanently ceases to have an obligation to contribute to the plan or permanently ceases all covered operations under the plan. A partial withdrawal occurs when there is only a partial cessation of the employer’s obligation to contribute. This may occur in instances when there is a substantial headcount reduction, such that the number of employees that are the basis for contribution are ultimately reduced, resulting in less contribution obligation.
An employer that withdraws from a multiemployer plan typically must continue payments to the plan to complete funding of the plan’s liability for vested benefits. If the plan has an unfunded liability, the withdrawing employer may be charged for the unfunded liability that it leaves behind—the withdrawal liability. In general, a withdrawal liability is the withdrawing employer’s share of the plan’s unfunded liability, although the calculations are determined based on the terms of the plan and regulatory requirements, and are often complex. If withdrawal from the plan would give rise to a liability, that liability is accounted for following ASC 450, meaning it is recorded when withdrawal is probable and the amount of the liability is reasonably estimable. If withdrawal is reasonably possible, disclosure of the possible withdrawal liability should be made.
Question PEB 5-1 addresses the measurement for a withdrawal liability to be paid over time.
Question PEB 5-1
PEB Corporation withdraws from its participation in a multiemployer plan and must pay a withdrawal liability; however, payment may be spread over a period of time not to exceed 20 years. Should the withdrawal liability be discounted and, if so, at what rate?
PwC response
It depends. The guidance in ASC 715-80 indicates that when withdrawal from a multiemployer plan gives rise to an obligation, the provisions of ASC 450 apply. Therefore, recording the obligation at the gross amounts that will be paid, without considering the time value of those payments, would be acceptable. Discounting the obligation to its present value and then accreting this balance to the ultimate settlement amount may also be acceptable if the amount of the liability and the timing of the cash payments are fixed or reliably determinable. Depending on the facts and circumstances, discounting at a risk-free rate or an effective settlement rate incorporating a credit adjusted rate may be most appropriate.
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