Pension Benefit Guaranty Corporation 1200 K Street, N.W.. Washington, D.C

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Garey Owens
5 years ago
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1 Letter of Comment No: 81i File Reference: l025pnu Prvtecting Amerl Panion Pension Benefit Guaranty Corporation 1200 K Street NW Washington DC Ofke of the Executive Director :: :: :: : :f : } January RobertH Herz Chairman Financial Accounting Standards Board 401 Merritt 7 Norwalk CT Re: Exposure COraft on Pension Foothote Oisclbsure Dear Mr n followup to our meeting earlierlhis week the attached docunlent prepared by our staff discusses the additional footnote disclosure that we believe would significantly enhance the quality and relevance of pension footnote information for users of financial statements i The most important additions or changes WOuld incfude: 0 t! disaggregatinginformation on large US qualified pfans showing five years of projected minimum cash contributions under RS rules adding plan termination liability in situations where it is relevant such as where the sponsor of an underfunded plan is experiencing financial difficulty adding information to allow recalculation of the obligation at different discount rates and disclosing additional assumptions that have an important effect on the amount and comparability of the obligation hope this is helpful to you and the Board as you next week to discuss lhepension accounting project including footnote disclosure and the items to appear in the exposure draft that you will be issuing in the near future f you have any questionsor needadditionaf mroitliation pfease let me know As always PBGC staff would be pleased to assist FASB staff in working on these important issues j t f > to t _ J L 0 i e * T 0 1 J o 0 J 0 Sincerey :BtadleyDBelt <: <: JEnclOsure : :i; _ :; <; : : : : cc:(with enclosure) GeorgeJ Batavick Peter Prdestakes _ :: : { \ : ; \ i ; i : ::; > ;:: ; ; : ; : :(;: _ ; ;; j ; \ ; :;!l ;J Jl :; \ ;j l \ \ : ; \ :J lu ii nil 3l 1 : cjl

2 ! t t r t r t! r ft t l r l 11 l! it i> Recommendations for Footnote Disclosures for Defined Benefit Pension Plans January ntroduction PBGC recommends several modifications to current footnote disclosures that would significantly enhance the value of the disclosures to users of financial statements including investors and plan participants Specifically these additional disclosures would help provide: quantitative information such as disaggregated data information to assess the effect of DB plans on firms results of operation and information to assess the firms future earnings and cash flows The recommended changes or additions are discussed below in order of their importance: Disaggregation of key disclosure items for large plans Currently the funded status information for all DB plans is combined and only the aggregated amounts are disclosed The totals include amounts for noninsured DB plans such as SERPs and foreign plans 1 Showing amounts in total paints a false picture of each plans funded status because upon termination one plans surplus can not be used to cover another plans shortfall This prevents investors from understanding the firms true exposure and participants from understanding a risk to their benefits Not every disclosure item needs to be broken down on a planbyplan basis The material disclosure problem would be addressed if the Accumulated Benefit Obligation and Market Value of Assets were disclosed separately for each large taxqualified US DB plan f cash contributions and termination liability are also disclosed (see below) they should also be disaggregated For this purpose large should be defined as any plan with an ABO that exceeds the greater of 10% of the ABO in total for all of the companys DB plans or $ With respect to small plans qualified plan amounts should be disclosed separately from foreign and nonqualified plans but it would suffice to aggregate amounts for all small qualified plans t should be noted that disclosing these amounts on a planbyplan basis does not create additional work for the plan sponsor Currently these amounts are calculated on a planbyplan basis and then added together to satisfy disclosure rules ::: ;::; _ : : ; t ;: l: : : l l 1 < 1 \ 5 _ * _ + : ) ( 1 ; i 1 Current rules reqire disclosing foreign plan ihf6rrt1alion separately f (1) it makes Up a signrficant portion ofthe total obligation and (2) the underlying assumptions differ signifcantly from the US plans : w ; _ : :; 1 \ l \ \ \ \: l q ; L i 1 1 f it : [ hljilll U U r ) J ( f T! i

3 : : : Five years of projected minimum cash contributions Because funding rules are so complicated the amount required to be contributed can vary significantly from year to year For example A firm may report that no contribution is due for the coming year solely because a credit balance exists that can be used in lieu of contributing additional cash However once that credit balance is used up the sponsor will need to start making large annual contributions A firm may become subject to the Deficit Reduction Contribution which can cause a sharp increase in required contributions n recent years there have been many airline plans with this pattern of sharply increasing contributions that has threatened their financial viability Because of these cliff effects providing contribution information for just one year can be very misleading Estimated minimum funding requirements for the next five years should be disclosed in the pension footnote t may also be appropriate for the sponsor to disclose additional nonrequired amounts it intends to contribute in the subsequent 12 months Disclosing plan termination liability where relevant f a firm that sponsors an underfunded DB plan is experiencing financial difficulty including competitive pressures that call into question the sponsors ability to continue to maintain the plan there is an increased risk that the plan may be terminated and taken over by the PBGC nvestors and potential investors in companies sponsoring insured DB plans have an interest in whether a DB plan is underfunded on a termination basis because plan sponsors are subject to significant statutory claims from PBGC in the bankruptcy process : n addition participants in insured 08 plans need to be aware of funding shortfalls on a termination basis They may be at risk to lose benefits because not all promised benefits are guaranteed Participants in terminated underfunded plans repeatedly say that they thought that their plan was fully funded Their misunderstanding often arises because the plans assets exceeded the ABO the PBO or current liability but not termination liability There are major differences among the plan obligations disclosed under FASB rules (PBO and ABO) RS funding rules (current liability and actuarial liability) and the plans termination liability For example as of the end of 2002 a legacy airline reported that one of its plans was 90% funded on a current liability basis (used for funding) 55% funded on an ABO basis and 46% funded on a termination basis The termination liability concept is similar to what companies calculate and disclose as their accumulated benefit obligation (ABO) but they are not identical Companies often use somewhat aggressive assumptions (retirement rates discount rate mortality rates etc) to determine the ABO for an ongoing plan Once a plan terminates PBGC values the plans liability as the present value to replicate what it would cost to purchase group annuities from insurance companies As such PBGC termination assumptions are usually much more conservative than FASB assumptions used for ongoing plans Excluding such information from the financial statements prevents investors and plan participants from understanding the existence and extent of a material risk associated with firms with underfunded plans! : ;: _ ;JjJ 1t? ; : : = ; = _ : ::0 : _ : }! :; t i 1! j l J j i i 2 } tii i i t! it j j J!!@ J = _ : : c _c eo

4 _t; : _n r «_ :: _ r _ 4 _ : : < A _ 0 4 ( > c n the Bass for ConduSioS for SFAS ;132(R) lhe Board stated that the termination liability should not be disclosed because that basis is only relevant if the plan is going to terminate and that termination liability is not routinely computed by plan actuaries However because of reporting required under section 4010 of ERSA actuarial firms now routinely calculate and report termination liability for many large plans Plan termination liability (disaggregated as per above) should be disclosed in certain limited situations such as when a plan is substantially underfunded minimum funding requirements under ERSA are significant in relation to available cashflow or the sponsor is otherwise experiencing financial difficulty that calls into question its ability to maintain the plan rlformation needed to estimate obfigatfons using a different discount rate Users of financial statements may want to determine the impact on the obligation of a change in the discount rate For example this could be done to estimate the effect of a change in the economic environment or to provide results comparable to those of other firms The change in obligation resulting from a change in the discount rate varies significantly from plan to plan based on the underlying demographics For example a plan made up of mostly retirees may see a 5 10% increase in obligation if the discount rate is lowered 100 basis points A plan made up of young active participants may see an increase in the 2530% range As a result accurate estimates cannot be made based on existing disclosures Either of the following additional disclosures will allow users to do much more accurate estimates Option (A) is the preferable approach (A) Sensitivity of ABOcalcuationto a100 basis point drop in the discount rate This would require an additional actuarial calculation but it is a fairly straightforward calculation so the burden would be minimal n all likelihood the actuary has information readily available that could be used to estimate this sensitivity t is worth noting that FAS 106 requires a similar calculation be done to help investors understand how the selection of a particular assumption affects the retiree medical plan obligations Similar information should be disclosed for DB plans so that the plans obligation under other assumptions can be estimated more accurately < l \: t t i ; ii (B) iii t i \l _ J : ; Breakdown of ABO by participant category Disclosing how the ABO breaks down among active participants participants currently receiving benefits and former employees entitled to future benefits (ie terminated vested participants) would enable the user to make a much better estimate than is possible with the amounts currently disclosed The estimate will not be as accurate as the 100 basis points sensitivity analysis but it will require virtually no additional work for plan sponsors to provide this breakdown n its Basis for Conclusions in Statement 132(R) the Board declined to add sensitivity information because it could be confusing and because changes in more than one assumption could be interrelated For example respondents thought that both the discount rate and the salary scale should be varied This concern can be addressed by limiting the sensitivity test to the ABO which is not affected by the salary increase assumption > > ; r t < \ ; 3 ; i \ 1 ;! _ \ \!i ; ) _ ( ; \ ll 1 0; \ 1 l _ 1 \ \ <1 \ H d r HUH 11 H y H J U il l ) lll: 1! ji t j j i!

5 _0 = : _ :::: : : : : ; 0 : :: Disclosure of additioncil actu8iiaf assumptions Actuarial assumptions other than the discount rate and salary increase can have a major impact on the amount of the pension obligations The most significant of these assumptions should be disclosed for the plans whose results are disaggregated These would include mortality rates rates of retirement assumptions about forms of payment (such as lump sums) and projections used for cash balance accounts Users of financial statements would be able to use the assumptions to evaluate whether the sponsor has fully and fairly reflected in the obligations events such as early retirement and selection of lump sums that can significantly inflate the values of the obligations Users would also be able to compare these key assumptions among plans of other firms especially those in the same industry 0 : : : : : :: 0 _ ; ) ; = : 0 _ c = 0 = _ :;: j f \ : \ t \ i t_ f _ J j : < : _ _ : }} :: 0 o 0 _ :;\ j i i ; : : 0 0: : e : ; _ ;:;{ 3;: ) : < :

Marathon Petroleum Company LP

Marathon Petroleum Company LP 539 South Main Street Findlay, OH 45840 Tel: 419.422.2121 April 26, 2017 Dear Participant or Beneficiary of the Marathon Petroleum Retirement Plan, Enclosed is the annual