When the Financial Accounting Standards Board finalizes its proposed staff position on pension plan disclosures, it will call for a lot more information about where and how fair value is used to measure pension plan assets.

FASB is working on amendments to Financial Accounting Standard 132R: Employers’ Disclosures About Post-retirement Benefit Plan Assets. The board accepted comments on the proposal through May, then reached some decisions at a recent meeting about what the final guidance will require.

FASB determined it will require employers to disclose where within the three-level hierarchy for measuring fair value a particular plan’s assets fall. The three-tier hierarchy is described in Financial Accounting Standard 157: Fair Value Measurements. The guidance will require information about the inputs and valuation techniques that were put to use to establish fair values for plan assets along with a reconciliation of beginning and ending balances for “Level 3” assets, or those measured using little or no market data but relying instead on significant unobservable inputs and assumptions.

The board also determined it will give entities an extra year to implement the guidance, making it effective for fiscal years ending after Dec. 15, 2009.

Jon Waite, chief actuary at consulting firm SEI, said an increasing number of pension plans have at least some percentage of assets tied up in instruments like private equity or hedge funds that are being measured at Level 3 in the fair-value hierarchy given persistent market illiquidity. He estimates most plans are measuring somewhere from 7 percent to 12 percent of plan assets at Level 3, with public sector pension plans among the most heavily invested in such “alternative” asset categories.

“It’s been growing over the past several years,” he said. “Before the turn of the century, there was probably a nominal amount of plan assets in alternative investments. Now we’re seeing a growing group of plans with at least 5 to 10 percent allocation.”

Just as financial institutions have railed over the difficulty in measuring instruments at fair value when market activity has evaporated, pension plan sponsors have hit the wall on measuring this hard-to-measure category of their plan assets as well. “In the past, you might have valued them just at book value,” he said. Recent guidance from FASB and from FASB and the Securities and Exchange Commission combined—emphasizing companies are not required to use fire-sale pricing but can also take into account cash flows and other factors—has helped calm jitters, according to Waite.