The Effect of Recognition Versus Disclosure of Unfunded Postretirement Benefits on Lenders' Perceptions of Debt

A sample of commercial lenders was surveyed to determine whether the method of reporting the obligation for unfunded postretirement benefits affected user perceptions of this item as a form of debt. Prior to the issuance of Statement of Financial Accounting Standards (SFAS) 106, the only professional pronouncement relating to postretirement benefits was SFAS 81. Survey results reveal that commercial lenders were more likely to perceive this obligation as a form of debt when recognized as a balance sheet liability than when disclosed in the footnotes accompanying the financial statements. Over 38% of the respondents indicated that footnote disclosure of this obligation was a form of debt, suggesting that disclosing unfunded postretirement benefits supplementally may affect many lenders' debt perceptions with respect to companies sponsoring postretirement benefits plans. The findings of this survey indicate that the Financial Accounting Standards Board should carefully consider the method of disclosing items.