How should an underfunded defined benefit pension plan be reported under US GAAP?

When reporting an underfunded defined benefit pension plan under US GAAP, it is crucial to assess the relationship between the fair value (FV) of the plan's assets and the projected benefit obligation (PBO). In situations where the plan is underfunded, meaning that the PBO exceeds the FV of the plan assets, it is reasonable to report the excess as a liability.

Specifically, if the benefits payable exceed the FV of the plan assets, this indicates that the employer has an obligation to pay the shortfall. In this case, the appropriate action is to classify and report this shortfall as a current liability, reflecting the company’s obligation to fulfill pension benefits to employees in the near future.

In summary, this approach aligns with the requirements for reporting pension obligations, providing clarity to investors and stakeholders regarding the company’s financial position and the funding status of its pension plan.