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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.
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